Invest Like the Best with Patrick O'Shaughnessy - Bored Ape Yacht Club -  [Web3 Breakdowns, EP. 1]

Episode Date: November 18, 2021

Today, I am excited to share our newest show, Web3 Breakdowns. Similar to our Business Breakdowns series, Web3 will have it's own dedicated feed so make sure to hit this subscribe link or find it on your preferred podcast player. The first episode of Web3 Breakdowns covers Bored Ape Yacht Club. You will hear from guest, Eric Golden, who will also be coming back to host his own Web3 Breakdowns moving forward. We are sharing this first episode to make sure no one misses this launch.  ---- Welcome to our new show, Web3 Breakdowns. We want to be your on ramp into this new decentralized world, and through conversations with builders, creators, and investors, we will do our best to help you understand and navigate this emerging ecosystem. First up, we are breaking down the NFT project and cultural phenomenon, Bored Ape Yacht Club. To help break down Bored Apes, I am joined by Eric Golden, former Portfolio Manager at Fidelity and current Bored Ape owner. Eric and I start with an overview of the Bored Ape Yacht Club and his path to owning an NFT in the collection. We then use Bored Apes as a lens to understand how NFT projects are not just creating rare art but strong membership communities too. Beyond the cultural differences between NFT communities, it was fascinating to hear how projects are differentiating themselves with IP ownership, roadmaps, and DAOs. Please enjoy this breakdown of the Bored Ape Yacht Club. For the full show notes, transcript, and links to the best content to learn more, check out the episode page here. -----   Web3 Breakdowns is a property of Colossus, LLC. For more episodes of Web3 Breakdowns, visit joincolossus.com/episodes.   Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here.   Follow us on Twitter: @Web3Breakdowns | @patrick_oshag | @JoinColossus   Show Notes   [00:02:30] - [First question] - What the Bored Ape Yacht Club is [00:03:39] - Motivations for owning a Bored Ape compared to traditional art  [00:07:46] - The scope of prices, hierarchy, turnover, and trading overview of these NFTs [00:09:51] - Distribution of rarity and why it matters  [00:11:29] - How the project roadmap is managed by the member community [00:16:23] - Who are the members and the key stewards of steering the ship [00:18:08] - An example of a project where the owners don’t own the IP of their NFT [00:20:56] - Underlying fundamentals and utility behind owning a Bored Ape  [00:26:36] - Thoughts on fungible tokens inside of non-fungible projects [00:29:06] - Ways to think about the value proposition of owning an Ape and an Ape token  [00:30:36] - Different options for minting NFTs and their pros and cons [00:34:36] - Literal mechanics of the minting process [00:36:59] - Smart contract mediating of combining NFTs to generate rare ones [00:39:20] - Building a bottom up brand and other examples of this trend [00:41:50] - Are NFTs just gambling, or will they become investable assets like physical art [00:46:09] - Blockchain infrastructure of the NFT space and whether it’ll stay on Ethereum [00:48:48] - What makes the Bored Ape Yacht Club so innovative compared to other projects

Today, I am excited to share our newest show, Web3 Breakdowns. Similar to our business breakdown series, Web3 will have its own dedicated feed. So make sure to hit the subscribe link in our episode notes or find it on your preferred podcast player. The first episode of Web3 Breakdowns covers the Bored Ape Yacht Club. You'll hear from guest Eric Golden, who will also be coming back to host his own Web3 breakdowns moving forward. We are sharing this first episode here to make sure no one misses this launch. Please enjoy.

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Coinbase is the only publicly traded company with experience trading and custodying crypto assets at scale. Build a unified investment portfolio with the most trusted name in crypto. Learn more by visiting coinbase.com slash prime to get started. This is Web3 Breakdowns. Web3 Breakdowns is a series of conversations exploring innovation in the decentralized internet. Each episode, we will focus on a different topic. We will cover NFT projects, crypto assets, blockchain-based protocols, and businesses being built with Web3 architecture. We will talk to founders, artists, investors, and influencers to understand this emerging ecosystem.

Come join us down the rapid hall. To find more episodes, transcripts, and a library of content to continue your learning, visit join colossus.com. All opinions expressed by hosts and podcast guests are solely their own opinion. Hosts and podcast guests may maintain positions in the securities discussed in this podcast. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Welcome to our new show, Web3 Breakdowns. We want to be your on-ramp into this new decentralized world and through conversations with builders, creators, and investors, we'll do our best to help you understand and navigate this emerging ecosystem.

First up, we are breaking down the NFT project and cultural phenomenon, BoredApe Yacht Club. To help break down Bord Apes, I'm joined. by Eric Golden, former portfolio manager at Fidelity and current board ape owner. Eric and I start with an overview of the board ape yacht club and his path to owning an NFT in the collection. We then use board apes as a lens to understand how NFT projects are not just creating rare art, but strong membership communities too. Beyond the cultural differences between NFT communities, it was fascinating to hear how projects are differentiating themselves with IP ownership, roadmaps, and DAWS. Please enjoy this breakdown of the board ape yacht club.

So, Eric, we like to begin these things with just a simple overview of what the thing is. In this case, we're going to talk about the Bored Ape Yacht Club. My personal favorite example of just the madness and interestingness in the crypto world today. It's not a company. So usually we do companies. But we'll start the same way here with Bored Apes. Can you just give us a high level overview of like, what is this thing literally? Give us a couple numbers, a little bit of history.

What is the Bord Ape Yacht Club? And then we'll dive into all the interesting details beneath the top level surface. stuff. Thank you for having me. I'm glad you started off laughing because I can tell you this is going to be a little bit different than tearing apart cash flow producing company. So the BordApe Yacht Club is a generative art collection in the space of PFP, which stands for a profile picture. It started in April 21st is when the project came into being and sold out around May. What these things are are fun 10,000 pictures of Bored Apes that have 160. 70 different characteristics from spinner hats to gold fur. And each one of them is unique,

but part of the collection called the Bordeauxbya Club. And if you think about the collection, so there's 10,000 of them, their NFTs, people collect one or more of them. What are the motivations for owning one that are distinct from, let's say, a pure piece of art that you might show people, but doesn't have a membership criteria to it? Like, how is this something more or something different. So if you zoom out, I think for me of how I got into this, this is not what I thought I would be owning. I got into crypto late. And by late, I mean, everyone who was after 2013, that seems to be a big demarcation. And so I was into crypto in 2018, 2019, and I was buying it the coins. I really didn't know much about it. But when on Twitter, most of the information

was coming from Twitter and Discord. And on Twitter, you would see these crypto punks. And I really wanted a crypto punk and he would go in their Discord and I was lusting after these things. I was looking at them and saying, I just want one. But when I went into the Discord and I met these people, they've been in Bitcoin since like 2010. They own glyphs. They just knew everything. And I felt like such an imposter. I was like, I'm new to this space. I'm just trying to get skin in the game to understand it. I really didn't feel like I would blog. And so when the Bordy project happened, it had come right after Topshot. So Topshot came out at the end of 19. I got big into that. And in the beginning of 2020.

And people were trading basketball cards. And it really was this first experience with NFTs. And Roham has a huge, the founder of Dapper Labs, gets a huge amount of credit of kind of onboarding us into what is an NFT. And so at that point, ironically, in April, Larva Labs was about to issue their second project called Meevitz. And I actually bought two of those. And I thought it was the most ridiculous thing I could ever do.

I minted a human and a pig. A pig was very rare. and I showed my wife, and I'm like, look, we just minted a digital cartoon. That's wearing some new fake. And I'm like, you can trade this thing for like $30,000. This whole thing's crazy. And I put it up as my avatar and I was trying to like make this personality and just play around in the space.

And the apes were like kind of taunting me. And they were this new project. They started off at $200. Mibitz came out at like the equivalent of $8,000. And so this was kind of the blue collar project that it had a vibe in a culture. I wanted to be a part of. And so I ended up buying some board apes and joining the group and joining the discord and learning more about it. And I would say like for a lot of people, especially I bought it in May. So it was one month after launch. It was kind of this silly thing,

which was like we wanted to be punks, but we weren't punks. And we bought this picture of an ape. And it was this fun lore of what would happen if everyone got rich from investing in crypto. What would you end up doing? You would create this really cool bar and club to go hang out with your friends, which resonated with a lot of people. Like, you're working really hard. You want to make a lot of money. But what's it all for? It's just to go hang out with your friends. And so this culture war started between meibits and apes. And we were joking about it. What group you were going to join was all very playful and fun. We were watching the price of their project, which is quoted in floors. So floor is the cheapest you can buy something at. There was was two-eath and ours was

0.3th. And we're like, someday, we're going to cost more than me-bits. And we were just joke about it in the Discord and talk about what this project could be. And so it really wasn't on buying a piece of art. I think this is beautiful. I want to hang it on my wall, although I did really like it. It was more symbolic of joining a community and having a shared belief of the people who were on the frontier that are willing to kind of fail unconventionally, but came into crypto around the same time. We weren't the crypto punks. We weren't the first to get there, but we were totally okay with that. We were this new group that really wanted to have fun and teach each other. There's another famous podcast that always asks, what's the kindest thing?

And I really felt like the Borde Apewop Club exemplified that. When you went into the Discord, you're like, I don't know what Defi is. What is Solana? And why do all the VCs own it? It was just this amazing sharing community where with my eight, I could speak in a way that immediately got me into a circle of people I wanted to associate with and I wanted to learn from. And it was really a club, not a piece of art where I was going to say, I own this rare thing. I'm going to hang on my wall.

It's a really helpful backstory because I think so much of what's interesting about this project in particular, but maybe NFTs writ larger, is the community function, that all of a sudden these digital assets, these scarce digital assets become membership cards, like a unique brand of membership card. And I'd love you to talk through that in a little bit more detail. So first, I want to flesh out, there's 10,000 of these things. You said, I think there's 170 attributes. It just gives people a sense of the scope today, like what is the price for today? How much should they get traded? Like, is there a lot of turnover in them? What is the hierarchy of rarity?

What's the spread between the cheapest and the most expensive and how is that determined? Like, just a little more meat on the bones of the hierarchy. Because I think these details are the things that the community latches onto as things to talk about. And it's like watching sports or something, right? It's the detail that makes it come to life. So give us a little bit more of that detail. Today, there's been 15 ape sales. I watch it pretty closely.

Ironically, we couldn't be recording this at a better time, because the record was just broken that a trippy, if you look at it online, it's an ape fur that looks like a hippie, trippy, trippy tie-dye skin with a crown and heart sunglasses just sold for $2.7 million. Now, that's unusual. I mean, it's actually not last week. We had two mutant sales, which we'll get into, which just went for $1.4 million. But today, the cheapest ape you can buy, where it's just 35 ETH, but based on ETH's price action, that's about $140,000 to $150,000, give or take. So that's the cheapest you can get. There are bids for over a thousand eph on some of the gold, the rarest apes and the most desired. And so I would say people looked at the class system

that I developed with Cryptopunks where you had aliens, which were the rarest of the rare and then different levels. And so you've got this, a lot of the ways these PFPs start to price. You can think of a pricing curve as there's a floor, which means generic, nothing special. And then there's kind of a mid, and then there's a steep function for the rarest ones. And so those ones go from at this point now, we're talking about multiple millions of dollars for one of these things. And if you think about the activity that this distribution of rarity creates in the community, talk to me a little bit about that. Like, how does that matter and why does it matter, other than like bragging rights or status signaling? And maybe that's the whole function.

So these prices have gotten astronomically high very quickly. If I rewind back to the fun part, there was a cheetah fur and a DMT fur, and the DMT fur is this psychedelic fur. And they started these gangs called the Cheetah gang versus the DMT gang. And like we're all for them. I mean, there's some teenagers. Everyone's anonymous for the most part. So it's a wide group of people. But like the cheetah gang was threatening the DMT gang.

And so you kind of had these like subgroups established. And then they would create their own discord. So I'm part of a discord called the Rare Apes Club, which is club owners that own some of either they own a collection of apes where they own a bunch of them that equal a significant investment and or they own some of these rarer ones. And the reason why that's helpful is a lot of the largest transactions are happening between counterparties that are off OpenC. If you listed on the exchange, maybe it will get priced there, but a lot of the rare rates will trade amongst the group of people who know that they want to sell something for several million dollars. I mean, this is still early. To give you numbers,

I just saw a Galaxy's report. And I think they have, OpenC has 70,000 active daily wallets. So people have quoted the space at 300,000, but you have 70,000 people doing this, or at least wallets using it. The amount of people that are going to spend $2.7 million on a rare ape is a small universe right now. And so for trades like that to happen, you really need to know, like, who is the buyer base who would actually want to collect something like this? Let's talk now about the value of holding these things beyond the purely digital. They release this thing called Roadmap 2.0. And again, I want to come back to there's a difference between owning a piece of art, say in the extreme, you own the Mona Lisa. That's incredibly valuable.

Maybe it appreciates over time. It's a piece of culture. Like, there's all sorts of interesting art-specific angles that will probably cover more in other episodes. But in this one, I'm really interested in sort of the membership and community-specific angle. So how is this organically, this roadmap managed? How does the community contribute to it? Are you excited about it? Like, what do you think this might become if each of these 10,000 things is effectively like a membership card into a club? Roadmap 1.0 was a scavenger hunt where we were going to give away an ape and also a certain amount of EF. So the first roadmap was pretty basic, but the big finale was

releasing of the mutant apes, which really was a way of extending the club. So if there was 10,000 people that were part of the original, they had always planned to make that number in total 30,000, but was really fascinating was the way they went about distributing the second batch of the 20,000. And what was interesting about is most of the wealth of the money paid for those mutants went to original owners, and some went to the board APYi O'C Club founders themselves. So there was this economic thing where they delivered to original holders serum, and that serum, if you combined it with your ape, would create a new mutant ape,

and then you could sell that, but you got that for free. The value of that, the day it was dropped in U.S. dollars, was between $15,000 and $60,000. So everyone who owned an ape just got 15 to $1,000. $60,000. And that came on the heels of us already getting a board eight dog, which we could have sold for probably $15,000 to $20,000. And so if you were in early, you've been paid back your investment already through the air drop mechanisms, which you can talk about some more. With the board apiott club itself raised, the actual founders raised something like $90 million in that second sale. Combine that with the fact that one of the interesting things about how

NFTs sell is every time it's a transaction happens, the board ape yacht club, gets 2.5% in a royalty. So if you have a million dollar sale, you have $25,000 going into the kitty. And so these numbers are wild. But since April, they've done over a billion dollars in sales and raised over $100 million in revenue for this organization to do what it will with. And so you ask the question, there's kind of two parts. One thing that made board apes unique was they let the owners take the IP. So I own my ape. I can start a beer company, a coffee company. we can start the board investor yacht club together. There's all of these things that you can do

because you own your own ape. Roadmap 2.0 right now is literally just a picture, teasing on a lot of different things. And so the first thing that's coming up is called Ape Fest in New York, which I'll be attending, where we literally rented a yacht to go out on the Hudson River

for a thousand of our friends to hang out. A lot of us have never met each other. We're also throwing a huge party in Brooklyn, and there's a bunch of other activities happening for this week. because that's kind of the first meetup in real life. And then there's teasing at things that people are guessing about or speculating. You can pull the picture up. One is a game, which a lot of people are talking about, like a game that group could play

and the things that we own, we have some sort of partner as assets. The other that I'm most excited about is it looks like there could be an actual bar in Miami. The funny thing is like this meme becoming a reality. We were joking about what would happen if this all took off. Imagine we had our own yacht club where we were just hanging out at a bar together. And in fact, that might actually happen. And we're going to build one. And then the next one was Dow, which has really become, I think, going to be the big next thing in crypto.

It's been around for a while. But I think that it's gaining steam of, okay, if you bring all these people together, how do we think about governance? How do we think about what we do with the money? And so if you become a member of the board of yacht club, your voice, you can go into the Discord. You can say, this is what I want to do. People will work together to say, I want to do this on my own or try to make recommendations of what actually the yacht club should do. So, yes, I'm extremely excited about Roadmap 2.0.

I never really thought there would be anything past Roadmap 1.0, to be honest. I thought we would do this, we would trade it. It would be this iconic thing you own that when you looked back at time, you'd say, okay, when NFTs became the mainstream onboarding to crypto, which I really believe NFTs will do, board a field had a really strong place and how that all happened. But the brand and the strength has gotten so powerful, they've actually been able to generate something,

I think far beyond anyone's wildest streams where now we're comparing it to Ferrari and Rolex and Supreme and saying like, this is going to be an international global brand and how do we handle this and what do we do with it? Far more than I think what we could have imagined at the outset. Say a bit more about how that's all governed today. I'm sure it's less than 10,000 people since a lot of people own more than one

or maybe it's less than 30,000 since there's the mutant offspin. Let's say it's 20,000 people that own one of these things or quote unquote members, is it the original four founders that are basically still the stewards of this brand? Decentralization is very nice sounding, but in the end, most things centralized, power accrues to a small subset of a user base, et cetera, et cetera. How does that work today? Like who carries the flame, so to speak, for this brand? Yeah. So according to OpenC, there's 15,000 unique members across the 30,000. So on average, people have two. The four founders who are anonymous but have really fun names, they're in charge of

steering the ship. What's interesting about how Web3 works is the consumer owns the asset. So we have this unique alignment of incentives. If you think about a company that sold 10,000 things and the price went from $200 to $150,000, any company today would say we need to issue more supply. We can sell a million of these things. But what's unique about how this worked is that there's this view of, we as owners want the assets to appreciate and we want there to be value. And the founders are getting a benefit when there's turnover or there's a trade in the membership as new people come in or as someone sells something for $2.7 million, they benefit from the ongoing transactions of the actual underlying assets. What's interesting to me is the four founders

are completely in charge of where we're going. But the community has, I feel like an owner more than I feel like I just bought an asset and I own like an avatar in a video game. I really feel like I'm part of something much bigger than myself. If you think about some of the mechanics behind this, I think it's really important to dive into the details. The thing that really sparked my interest is this notion of IP ownership. So that leads me to believe that there are other profile picture projects or other NFT

projects where that's not the case where you don't own the IP. just walk through that fork in the road. So what's an example of one where it's not owned by the owners? It seems contradictory. Talk me through the implications of one versus the other. So I've talked to a couple of legal friends about this. And right now I have three frameworks that we've learned about. The first was when Larva Labs, who's the creator of Cryptopunks, first launched them,

I believe that they kept the copyright to themselves and they made some changes. But essentially, it's something like Larva Labs holds the copyright to the project. I think there's pros and cons to all of these. What that means is Larva Labs can do a deal with a Hollywood agency and say use these. But then they also licensed the Cryptopunks to the owners to use. And I think there's some fine print of like up to $100,000 in value. And that was the original NFT connection between the creators and the owners. It was a copyright owned by the parent and then licensed to the owners.

When Bored Apes came around, its first big addition to the NFT space was they just said, Let's give all the IP rights to the owner. So you own your ape and the Bored Ape Yacht Club, what they retained was, you can see we're on a podcast, but they own the logo of Bored Apes. They own the Bord Apes brand, the parent brand. So I can't go create a hoodie with this logo on it, but I can create as many hoodies as I want with my apes on them and sell them and do what I please. And so that was a version. There's been a third version.

I forget what they call it. But basically this one is just the whole thing is just given to the community. Do whatever you want. There's no rules. There's no nothing. you want to create something. Nobody owns anything, just full distribution. And so I think where we've discussed it, which has become interesting, is there's been people in traditional finance or other people on Twitter that have done this thing of copy and paste a picture to kind of say, this is all foolish.

And there's this view of like, well, how does the property rights work? Do I have to go after every person that copies my hate? And the truth is, you do. But the community gets really upset when that happens. And we'll actually go with Twitter and be like, they're impersonating things. Whereas with Cryptopunks, There was a project that just took a punk and flipped it from right to left, from left to right. They just mirrored the image. As angry as it was and as silly as that sounds, Patrick, it got me into this fascinating thing of, like, what is art and what is creation and what happens when people are inspired by other people? But in that case, Cryptopunks was able to represent their entire brand, go to OpenC,

and say, take it down. And so we're still in this experimentation play phase of how are property rights being transferred to the owners and what are they doing with them? And we have a couple of frameworks, and I'm sure we'll see more as more projects come online. So one of the things that I'm always curious about in anything is like, what is the fundamental behind the asset? And beautiful thing about Bitcoin or gold is there is none.

It's a collective story or an agreement that grows or doesn't or whatever. And so price is kind of untethered beyond just the imaginations of the owners. Whereas something like Ethereum that gets used a lot or Salana that gets used a lot, or in this case, bored apes, relative to say, crypto punks that seem to have much less going on in their ecosystem, you can map their value onto some underlying thing that's not just price speculation and supply and demand. So how do you think about that as an owner? Like, do you care? These things are worth a lot of money today. It would be unsurprising if they were worth 5% of that amount in two months or something for some reason, because there's not a huge amount of underlying fundamentals. So as someone

interested in NFTs, how do you think about that concept of earnings equivalent or cash flow equivalent or I don't know what the unit of fundamental is, but how do you begin to map old models onto this new world? I think it's really hard. It's a question I ask myself every day looking at the prices. When Cryptopunks was released, it was released with no roadmap. That's been a big distinction of like, we're just putting these out to the world very much like Bitcoin. When Board 8 showed up, they said, we're going to do something. And there was a question of like, what are you actually going to do? And so I think that when I look at valuation, I would caution people that this is still wild speculation, people playing with what's possible. But Board Apes is by far the group that has my attention of delivering and actually building a brand and has a lot more plans for the future.

And where they've accumulated all this money, now it becomes an execution. So without any venture capital, they've generated over $100 million on their balance sheet to do what they will. and you have a very passionate, loyal community. I think of Chris Dixon's thousand true fans just hit me. I was like, oh, I totally get it, where you've got 15,000 people, of which there's definitely thousands of extremely loyal fans that want to see what's possible.

And so I don't think people are doing discounted cash flow analysis on their ape. I think they're comparing them to other assets, if anything, and doing relative value, that's what I'm doing, and saying when I first came into the space, I wanted a punk. That's our gold or our treasury. We're basing stuff off of. And how much should a board eight be in relation to a punk? How much should a board eight be in relation to a piece of art like Dimitri's ringers?

And so you're comparing it to other assets. The interesting thing is that they actually have like with the air drop mechanism, they actually did start to generate cash flow. But I'm not thinking like that's going to be a perpetual thing. I think that's a one-time thing because then you get into how this suddenly does start to slip for people to feel like Ponzi's, where you're like, oh, I'm constantly going to issue a new thing, to issue a new thing. And I can see why people are massively skeptical, which they should be, but I think that the brand is actually going to be able to build out IP that will be valuable.

And I think that we're getting into a space that fascinates me. It was at your conference where Malbosin was talking about intangible value. And it's so hard for a good analyst to put that on a balance sheet. As a former portfolio manager, you're trying to value companies and intangibles where all of the values going. But we have no good accounting metrics. And what I'm telling you is I'm buying intangible value. I don't know how to measure this yet. And I don't think we have the words or the measurement mechanisms.

We're just not at a place where you can say like, oh, well, that's what it does. NFTs are starting to get into defy, which everything just feels like you're going towards this asset unlock using markets for price discovery. And you're starting to see NFTs drift into the defy space. So with that, I think you might be able to do a little bit more. of a traditional analysis, but I don't think we've figured out yet what's the best approach to value these things. And so if anyone asks, I usually don't talk about this stuff. And here I am on your podcast, because I don't want people to think like, you just buy it for $200. It goes to $250,000.

Eric, just DM me the next project. That's going to happen. We could walk away. It's still a very speculative asset class. What do you mean by NFTs or going into defy? What does that mean? So what that means is what I'm interested is a new NFT project comes on a lot. I'm very interested What new aspect is it adding? We've seen the social status showing people, hey, I was early or I own this really value asset. Clearly, this is entertaining. The question is utility.

What type of utility can these things bring? And so utility to me is innovation on the prior projects. There was a project, I don't know who the first one to do it was, but the one that's by far the most popular or the most successful is called Cybercongs. And what Cybercongs did was when you bought one of their NFTs, you started earning tokens for every period of time you held it. So if you held it for a week, you got X amount of tokens. And then after you saved up enough of tokens, you could then create the next tier of the membership. And so why that's really interesting is it's incentivizing people to hold for longer

period of time. And then you had this economic value. You knew that if I held it for X amount of weeks, I could collect enough tokens. With those tokens, I can create an NFT and sell it. And so then with tokens, now you can start to create liquidity pools, you can get into staking, you can do all of the things that people are doing in the defy space, but connected to an NFT instead of connected to a token. Now, I say that with all of the caveats I can, that what's been really interesting about this next step into defy is this question of, are these securities, are you going to have regulation? Like, what are you stumbling into from the silly art community? This is a fun project to, oh, wow, I have a cash flow producing asset.

was that supposed to be registered with the SEC? Let's talk about fungible tokens in non-fundable projects. If DFI starts to become a part of or traditional fungible cryptocurrencies start to be a part of these communities, how do you think that works in some detail? Like, I think they actually even announced plans to do this a couple of weeks ago within the board of bioc club. So let's say there's an ape token. How do you think about that as a new element of this ecosystem that's being built? I'm really excited about it.

When CyberConnics took off, then there were several other projects that all issued tokens. And all of the NFTs with tokens started to go stratosphere. Everyone started to rise. And so like everything in this type of space, a meme got created called When Token. Because everyone's like, Bored Apes, like, what are you going to do? Everyone was waiting. And this is where I really respect the founders is they're not out there pumping their project. They're not telling you, do this, do that.

They were really quiet. And every time they've been quiet, they've been heads down actually building. But the pressure had gotten pretty big of people asking, like, are we going to get a token too? They announced they were working with two of the top law firms in the space to do this right. It basically assured everyone that, again, Board Apes is a bit of a leader in this space of being like, if we're going to do something, we're going to do it right. And so that put my fears to rest of like, okay, these aren't just issuing a token and be like, oh, we'll figure out the regulation later. They're actually being very thoughtful with every move they make. At first, I was like, oh, this seems so like all this ICOs from 2017, this seems bad.

Like, it was giving me a bad feeling. But the more I dug in and talked to different people in the group as well as outsiders of what it could actually be used for, I think it's possible you can imagine having a token that you could use in the real world as well as in the Metaverse. I think that's extremely interesting. So if in fact we have a club and the club has a hotel room, imagine if the only way to stay there was to use currency purchase in this ecosystem. And so Patrick wants to go to Miami and stay at the club, just like if you went to New York

and stayed at the Yale Club and you would need a reference from someone who's a member there, you could go to the Yacht Club. And the way you use your membership was you had X amount of tokens to actually go and use it in the real world. I think you'll also see it in this idea of the Metaverse, which is an overused term, but this notion of like if you want digital assets or you want to add to what's possible in the game or sandbox or these other places you can play around, that that currency could be used. in a way that helps you interact with either your avatar or games or the places you're going to interact or walk around.

There's a quote from one of the anonymous founders whose pseudonymous name is Gargamel. And he said, your ape is your MX black card. And that kind of sounds like what you're getting at here, that the combination of your membership token will call it that's non-fungible, your unique ape with some sort of fungible currency would be the two assets that mattered in this ecosystem. And the utility becomes the things you talked about earlier, the club and in Miami, the ability to do all this different stuff, perhaps partial ownership of a Supreme like brand that the brand itself becomes valuable and you have participation in it. I like that

phrase, your ape is your MX black card. Any other ways that we should think about that? I want to take a side story real quick because I love it. One of the apes created an AMX black card with your ape on it. So one of the members literally created where I was a little bit nervous. I haven't done it, but I definitely want one because you're handing your credit card number over to a company, but they're making what looks like an Amex black card, but then instead of having the Spartan warrior in the middle, you have your own ape laser etched on it, and it's an actual credit card. This is the actual physical card.

After Gargamel said that, someone went out and built it. I don't know where I've ever existed with this type of innovation and energy to like just do what you want to do and create these things. And it's such a positive group of people that were like, that's a really good idea. My ape should be my black card. and now you can make your ape, your black card. And so I just think it's a wonderful story about people actually just going out and doing the things that they want. And that wasn't sponsored by the group.

It came from Gargamel's quote. I want to go back to a little bit of the mechanics of this world. And this will be a bit abstracted away from just board apes. But you've done a nice job in the past explaining to me like what some of these terms mean and how if there's going to be a lot more of these projects. There seems to be a lot more demand than supply right now. So I'm sure we'll see more. How it actually works. So the first is this concept of minting.

It makes sense to me to go on a website and send some cryptocurrency to pay for a board ape in a secondary market. That's kind of like any other asset I would buy. But in terms of origination and how these things come into being, describe this to us. Like, what are the different paths that project creators have pursued? What do you think are the pros and cons of those paths? Just walk us through this kind of minting origination concept for NFTs. I'd say four different versions, big iterations.

There's traditional minting, Dutch auction minting. mint passes and white listing is the newest one. So the original minting, which is what Board of apes did, is it's just called free and fair, and they posted on their website. Maybe they announce it, maybe they don't. But back then, projects didn't sell out right away. And they said, okay, hey, at this time, on this day, you can come on. And if you pay us 0.08 if, you're going to mint and create an NFT in that moment.

And you go on and you would create one. Now, if we look at what ended up happening, as projects got more popular, your passport apes, when you would go on and you would pay your 0.08th, you would find yourself what's called a gas war, because most of the NFTs right now, greater than probably 95% are on Ethereum. And there's other networks that do this, but most of it's on Ethereum. And so at that moment in time, like, oh, I'm like, I think this is a great project. And Patrick thinks this is a great project, but there's only 10,000. And so what ends up happening is you're like, you'll say, I'll pay more gas in Ethereum to move up the line to make sure I get one of those 10,000 on it.

what ended up happening was you had these evolutions of other projects where people like Meibits did a Dutch auction and that was pretty popular in ArtBlocks where you'd start at a really high number, three Eath and say if you want to pay up, go ahead, you'll guarantee it. But if you want to wait, the number will slowly decrease and you can buy it for less. Mint passes was a way of saying, okay, I'm going to sell an NFT and try not to have a gas for even though they still cause them. And then at a later date, you could burn your mint pass for a new item. And whitelist is the newest one, which is my least favorite, actually, of all of them,

where you get added to a list and those people have access to the mint, and there's a lot of question over who gets to the side, who's on the list. But after you mint it, so let's just say you use a traditional method, you have a minting date, everyone goes in, there's a gas war. There's going to be 10,000 tokens distributed. There's a couple of paths that I can take. One is if it's generated on chain and one of it's off chain. And so this is another issue that people were worried about at first, where when you do an off-chain

mint, there can be a period of time between minting and reveal. So there's a question over, is there any funny business? Did the data leak out? So you bought this NFT, and at first you see nothing. You see a general image. In the case of BordAge, I think it was a skull. And then you're waiting for Reveal Day. And on reveal day, all the attributes suddenly appear, and you can see what you own.

So there is a lottery-like game to it where people love minting, because if you went in on the board a mint, you paid 0.08 and you got a gold fur ape, even on day one, that was going to be worth multiples more than a floor ape. So back to our rarity, there's a fun part about minting. That's a bit more of the speculation lottery of, oh, I really hope I get one. And so what ends up happening is after mint, the price usually goes up for an exciting project because there's a positive EV associated with what are the odds of actually getting one of those rarer ones. And then right after reveal, the price plummets. And for new people, this is not an exciting experience because you're like, oh, it's doing great. I don't even know what it is. And then it crashes. And that first kind of crash is

the EV being taken out the expected value that, oh, I didn't get the rare one. So what's the floor worth? I just sell it up a floor and then a floor gets established. And then you start to figure out how much your rarity is actually cost. Talk a little bit more even in greater detail about minting, like literally what is happening. So you're sending 0.08, where is that going? How is that being source. Where does the picture itself live? Some live on chain, some live off chain, like literally what is happening from a flow of bits standpoint when something is minted. So you are connecting your wallet, typically via a website like you mentioned, and that website is then when you log on, you're signing a contract. And that contract is saying, I'm allowing my wallet to interact with

this contract. And by sending 0.080 to that contract, the contract saying, in exchange, if you're one of the 10,000 people, will deliver you a token, and that token will be a unique identifier. So if you own token, 3204, that's your token. The next question is, what is token 3,204 actually equal? When you have stuff that was generated on chain, which means that the actual contract, the actual token has some of the, some, if not all, of the descriptive data or the actual image, that's considered the most secure because it's all on chain. The problem with it, as people have learned with studying different blockchains, is that takes up a lot of space.

And so if we put all of the art on chain, every time we move it around, it's really expensive and cost prohibitive. And so people came up with the pointing to a decentralized server, in this case, IPFS, where you're actually linking to another server, and that server holds the image. Now, this has gotten people worried in the past. You'd go through for anyone who's not in crypto, but is. We call it FUD, which is FUD, which is, your uncertainty and doubt and everyone freaks you out and says, oh my God, you bought a website link. That's really silly. And you're constantly told like this is the dumbest thing you've ever done, which kind of is a self-selecting process of like how far in the frontier do you want to go? I personally love it. So IPFS is a decentralized server where you can store the image.

There's another service called AirWeave where people have started to download and protect their assets because they're afraid. What happens if the link gets changed? What happens if the service goes down, I don't actually own it. And so that cause for some buyers, they'll only buy on-chain art, independent of what it looks or what it does, but you lose a lot of the flexibility if we're going to stay on Ethereum with what you can actually build unless you do something like I described that Bored Apes did. In the other example you gave earlier of you as a BordApe owner got serum and the mixing of serum and your Bord Ape created one of these mutant apes. Again, is that just all kind mediated the same way? Like, there's some smart contract that's just like if you press a button

on a website or something, like the thing happens and then your wallet is filled with this new token? That was super cool. And that was an innovation that they had been working on from the beginning. The board eight dogs that were gifted was really just, we're shocked that this is going so well. How do we repay the community? That wasn't on the roadmap. The mutants they were working on since the beginning. And that was super cool. And so what happened was, if you were an ape holder, you got one of three serums, M1, M2, or mega. So there was going to be 20,000 total mutants created. 10,000 were going to be part of a public sale.

10,000 are going to be distributed to the existing 10,000 holders. And so if you got M1, there was going to be 7,500 M1s, 2,500 M2s, and 8 megas. And everyone was excited that technically you could take any ape, and the ape could new take three times. So if you had a gold ape, you could make your original gold ape, then you could make the M1 gold ape, the M2 gold ape, and possibly the mega. When the serum came out, it was really interesting just to play with the assets where you could keep the serum and keep your ape unmutated.

So people are saying, oh, like, I wonder if my unmutated ape will be more valuable if everyone mutates and mine's a virgin. And then people are like, no, I want to collect the whole set. I want to have my original, my M1, and my M2. I want to put them all together and keep them as a bundle. And so people are playing with it differently. But what the mechanics were is on the website when you went on there, you connected your wallet, you said, this is the ape, I want to mutate. You connected it with another

NFT and then combination of those NFTs created a third NFT. So it was a new mechanism that allowed you to actually mint the third one, but there was no gas war. There was no trouble with it because we had been air dropped the serum. So the beauty is if people look back at their original owners and say, okay, the owners are going to get first crack, that might not be the best way to open it up to people. So there was the public sale. But using the serum, through an air drop allowed everyone to get this. And then you could, today you can go buy serum if you want and mutate your A. If it hasn't all been done yet, some people are still sitting on their serum and waiting

to either sell it or use it in the future. One of the things that's so interesting about this story is the inversion of usually in the world of business, first comes product, then comes distribution, then comes success. Sometimes businesses have started with distribution, build new products and had success that way. This seems to be the first example of, I like the term bottom up brand that first comes community that sort of bootstrapped into existence. The community then starts doing stuff. It's sort of headless. There's the four guys, of course, who I think are stewards, but the black card example is a great one. What other examples of this bottom up brand concept are the most interesting

to you in terms of what you've seen in the board ABI Club so far? And any thoughts on just that as a big trend. Yeah, so I think that there's definitely been lots of people testing and being entrepreneurial with their apes and trying to make things happen. I think one of the things that caught me off guard was the celebrity status in two ways. The first is celebrities joining the club and being able to talk to them like normal people. That was a big shock to me that I had made a post about how I'm a huge fan of Darrell Morey and I knew he was collecting NFTs and so Cuban was joking about something and I said, I made a bet that like Daryl is smarter than Cuban and I'll buy a board eight before Mark Cuban did. And sure enough, then Daryl retweeted at my

silly anonymous account, I already own one and then Cuban quickly followed on. It's like, when are you going to be able to talk to people like that? Steph Curry joined as Brian, Shaquille O'Neal. And they came in to the Discord like normal people. It wasn't their handlers saying like, how do we get access to it? And it was just a person joining a club and everyone went crazy because you were interacting with some people's greatest heroes and these celebrities coming in. The other side of that coin, which has happened, which again is surprising, but again, it's similar to that black card status is if you're a black card holder, other vendors want access to who the black card holders are. You want to show them, hey,

these people have assets are willing to take risks. What's interesting in the NF2 space is with your ape, we've gotten free drops from other creators just to get the stamp of approval that if the board rapes like it. Maybe this product has legs. So it's served in a way that I never anticipated of every day. Someone says like, oh, it's scary because it is all decentralized and keep her like, connect your wallet. You get this free token and you're like, maybe I do, but someone did. And I get nervous about that a little bit of a great way to scam people because these things are very expensive. But you do get access to a lot of different things. We've talked mostly about the neat aspects of all this and much less about the investing side, the potential for

earning, let's say, a cold, rational return and not caring at all, whether you hold on to an A for a day or a year, like, to view them as trading vehicles, let's say, which people love to gamble, people love to trade. Do you think that there's room for an NFT, like investment story that sounds like there really aren't those today? There's crypto investment firms. I'm not aware of any major firm where it's a fund and it's just buying and selling NFTs. Is that just gambling to you? And if not, how do you think this evolves as these things becoming investments, just like you might describe art as an investment or some other collectible as an investment or some other utility security as an investment?

I'm just curious, since you come from the investing world, how you view this through that lens versus this great community lens that we've spent most of the conversation on. I believe that there's one major issue, but before I get to the issue, I'll split up in the three categories. I believe you could create an NFT fund and do a buy and hold on really what are considered the blue chip or historically significant pieces of work in this space. And if you're betting on Web 3 being a big deal, and you also believe that NFTs will be the big onboarding to mainstream into this world, that you could build a portfolio and lock it up and wake up in 10 to 20 years and it could have significant value if you're right about that. I believe there's an ability to

trade the assets coming from the fixed income markets. It's an over-the-counter market. And this is much similar. The bid-ass spread right now on board eights is probably 35-eath. Someone will sell it, and someone will buy it for probably 30, maybe 20-80. So the bid-ass spread is 5 to 70th, which in today's dollars is $20,000 to $30,000. Now, this is not the most liquid, but when you're used to bid-ass spreads and ticks, you can drive a truck through this. So clearly, you have a liquid, market and there's opportunities to trade assets. But by and large, it is speculative. And a lot of people are betting on the next project or the next thing to go up and people are playing it like a lottery and there's a lot of gambling. And so it definitely has those properties. And I think the risk is that

we talk about it about going down the rabbit hole. If I was sitting in my old seat with my full-time job looking at this, I would say, this is crazy. All gambling and it's insane. And while that's a lot of it, I think that the gamblers are the ones that are willing to try if they see that there's an edge, whether it's people can have careers in daily fantasy sports. When we were going to high school, I never thought that would be like a real thing. And so you definitely can speculate in the space, and a lot of it is gambling. But I believe we're seeing the formation of a new asset class. And so I believe that the experimentation is going to lead to more utility in the form of,

I think gaming is the big one that's coming. It's already here, Axie and with Z, but I think we're going to see more and more introductions of play to earn gaming, which is going to onboard a lot of folks. And then I think the next level is seeing in real life utility of what you can actually use these things for. It's going to become more ubiquitous where people are going to be like, we used to buy tickets to a sporting event. And then we had to print out PDFs. And then we had QR codes. But why am I not just getting my tickets in NFT form going to the game?

And when I'm there and Mark Cuban knows I'm there, they can air drop me a pass for me and my kids to be like, oh, you were at this game. And if you collect 10 of these, then you're going to be in a super fan club and be entered into. a raffle to win the playoff tickets. And so I think NFTs will become far more ubiquitous as it becomes in real life. And so from an investing standpoint, I'm interested in all three of those areas. I'm interested in the long-term buy and hold assets that if you ever get your hands on, you want to put away and say, this is my Mona Lisa or my prize possession. I'm interested in the ability to trade and move around the markets where you can make money. And if I'm bullish on East, which I am, and this is a good way to get more East than I would do it, I think you can

speculate and that's okay. As long as you do it with money, you're willing to lose and you're not tying up funds that you're saying, I need these. I think that's okay. And by doing those three things, I think your best position to see what's coming and know who actually is going to unlock a lot of this value and create the things that are going to make NFTs so ubiquitous in our future. Given how much time you've spent on this in your comment earlier that 95 or something like that percent of these projects are on Ethereum, how do you think about the infrastructure in this space? like Solana is the obvious one that people tend to ask about. Ethereum has its benefits.

It also has its drawbacks. Do you think that most of this activity, this NFT asset class that's emerging, or whatever you want to call it, will be primarily on Ethereum? Yes, no, if not, why not? I mean, I'm grateful for how much you've taught me about Solana. And I'm not a maxi of any means. Of all of the blue chip long-term assets that I would hold and put away for 10 to 20 years, They're all on Ethereum, end of sentence, period.

Glifts, punks, ringers, Xcopy. These aren't on Solana. They're on one chain and they matter a lot. That's not going to change. I have begun to play with Solana NFTs. The idea of it is that they're lower costs so you can do lower cost projects. And I think that's really interesting where my first experience with that was on Maddock Polygon with Zed Run.

And that needed to me. We had 38,000 horses. The horses are running 10 to 20. races per day or whatever we're at now with fatigue. So you have a lot of transactions. And if you did that on Ethereum, Zed could never run. And so they're using an L2 chain for that. And that's working decently well. Anyone who's been in crypto and has ever used a bridge to cross trains knows how heart palpitating that moment is of like, where did my money just go? I think we will see NFTs on other chains. I think that for utility and access and things we want to move around

quickly that are lower costs, there's definitely a place for other chains to use NFTs. If you look at MBA top shot on what Roham's built, flow as a private blockchain. And what that allows is to do some really cool things that there is no transaction costs. You can use credit cards. You can go back to use your dapper balance. But you're in currently a closed wall environment, which I believe will be opened up over time. So I totally see another place for other blockchains and the adoption of NFTs. I think it matters. If I was working with a content creator like you and you were saying, okay, where should we place our NFTs? The question would be like, what are you creating? Are you creating the once in a lifetime full Patrick experience and it's

going to go for six to seven figures, then we're going to want to go to Ethereum for that. If we're doing a conference token that we're going to use once and it's going to go away, I'm much less inclined to use that Ethereum because I don't want the guests to show up. And when they show up, we're having a gas surge because there's some trading going on and they can't get into the show. So we would want to use Solana or Matick for speed. So I think it kind of depends on what NFT you're creating. and what your use cases are. Is there anything about the Borde A yacht club specifically that you think is most innovative

or exciting as a project that we haven't covered? I would just say that the fact that it was pushed by the community so hard, it was my first experience of actually feeling the consumers feeling like owners. Like, I don't know if that's really sunk into people of the bypassing of the venture capital folks to fund ideas. and this connection of creator with owner. And so I think that what board apes showed me, but really kind of expands my view of the whole universe,

is that the ability for content creators or businesses to connect directly with their end consumer and remove a lot of middlemen is just mind-blowing when you think about the possibilities. The idea that Taylor Swift could connect with her fans without Ticketmaster, Live Nation, StubHub, Google Search, all of the things in the middle

that are taking money away from Taylor and out of her consumers' pockets. And they're not going to go away forever. But the fact that we could make that connection a lot closer is wild to me. And then the second thing I've learned from Board Apes is that it really starts to make you think about what are all the assets?

Like we love markets, we love price discovery as finance people. What are all of the markets that currently don't trade, not because they shouldn't, but just because they're too small or they haven't been unlocked yet. And the fact that we actually could create new assets and have all of these new markets is just the most exciting thing I've ever seen.

Well, I think that's a great place to end it. I think the possibility remains much larger than the present reality. It's like the nice way of saying it, I think, and maybe the healthy, skeptical way of viewing this ecosystem as burgeoning possibility. And certainly for me, I try not to have opinions too much on anything I do publicly just because it's much more fun to listen to other people's views. But I do think, like, that is the most interesting thing

here, what you closed with, which is the possibilities for community and interaction and new business models that get unlocked by this technology. And I can't wait to watch it with you as a friend and continue to learn from projects like Board Ape. I think many people will be a part of creating one of these things in the future. And so it's a great introductory lesson to, I think, probably the most interesting of these projects today. Eric, thank you so much for breaking down Board Apes with us. To find more episodes of breakdowns or to sign up for our weekly summary, check out join colossus.com. That's J-O-I-N-C-O-S-S-U-S-U-S-U-S dot com.