On The Brink with Castle Island - Andrew Steinwold on Investing in the Metaverse (EP.210)

Episode Date: April 26, 2021

Andrew Steinwold, the founder of Sfermion, an investment fund focused on investing in themes surrounding the metaverse joins the show. In this episode we discuss: Andrew's journey in the cryptoasset industry and how we came to see the Metaverse as an investable theme How NFTs are a critical infrastructure component for the metaverse Views on the evolution of digital property rights How Andrew views investing in cryptocurrencies vs. NFTs vs. equity The companies that are best positioned to build the infrastructure for the metaverse To learn more about Andrew follow him on Twitter @AndrewSteinwold and subscribe to his newsletter, Zima Red.   Today's episode is brought to you by: Aave: Aave is a decentralised, open source, and non-custodial protocol where users can deposits and borrow digital assets, and earn interest on those assets. Head over to aave.com to experience and learn more about DeFi. Copper: Copper is the global provider of blockchain infrastructure solutions for institutional investors who are actively trading digital assets. Head over to www.copper.co/clear-loop to learn more.

Hi everyone. Today's episode is brought to you by Copper. Copper is the global provider of blockchain infrastructure solutions for institutional investors who are actively trading their digital assets. They have an award-winning custody application that's connected to 25 of the world's largest exchanges, and they ensure safe storage and movement of assets for some of the world's largest crypto hedge funds, market makers, family offices, and high net worth individuals. Copper's Clear Loop is the first off-exchange settlement network for digital assets. And it's the safest way to, trade balances in custody across multiple exchanges without requiring unchain movement of assets. Head over to copper.co forward slash clear loop to learn more. That's copper.com forward slash

clear loop. And today's show is also brought to you by AVE. AVE is a decentralized open source and non-custodial protocol where users can deposit and borrow digital assets. You can earn interest in those assets and head over to AVE.com, that's AAVEE.com, to experience and learn more about D-Fi. Today I sat down for a discussion with Andrew Steinwald, the founder of Fermian, an investment fund focused on the Metaverse. For those of you who have read the book Ready Player 1, you may already be familiar with the Metaverse, or at least what you think it will be, which may be a place where people go with their VR headsets and just disconnect from reality. As you'll hear from Andrew, the Metaverse could be much more multifaceted than that. And in some ways, we may

already be living in it with products and services like Discord and Roblox. Andrew sees public blockchains and specifically NFTs as foundational infrastructure for this future world. This was a fascinating discussion. I really enjoyed it. And so without further ado, here's my conversation with Andrew Steinwald. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated. The federal government loans, American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage

giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called the Bitcoin. Andrew, thanks so much for joining us today on the podcast. Matt, thank you so much for having me. I'm a huge fan. I'm really, really happy to come on. I appreciate it. And the Metaverse is just a topic that I am thrilled to dig into.

Obviously, I've read Ready Player 1. And so I know everything about it. But I'm interested to speak to an expert. But maybe before we hop into all the topics around the Metaverse, could you just give your personal background an introduction for us? Yeah, definitely. So I first got involved with Bitcoin in 2013, and I had no idea what it was. I thought the number was going to go up and it did. I was buying 200 bucks and went up to a thousand bucks. And for like a two-week period, I thought, okay, I think I might be the next Warren Buffett. And then, you know, quickly shattered my hopes and dreams because it plummeted and went back down to 200. I sold at the bottom. And after I sold, that's when I was like, okay, I need to read about this because I need, you know, everyone's

so fanatical about blockchain. They're saying Bitcoin's dead, but blockchain will survive. That was kind of the people were saying in the forums at the time. And so I started dive deeper into what blockchain was and took me quite some time to understand it because they're not technical. And when I did, I actually thought, okay, wow, there's some truly game-changing tech here. It actually will be very impactful going forward. And I actually dropped into college. I moved to the Middle East to go work for a Saudi hospitality conglomerate, working like restaurants, hotels, construction, totally random. While I was out there, actually living in Dubai at the time, I learned about Ripple in 2014. And we came, you know, living in Dubai, no one's from there

and come salary day, which is once a month, people are lining up around the block to send their money back home. These people are paying like 10%, 15% fees off there, let's say, a third. thousand dollar monthly salary. So they're getting totally destroyed in the fees. And I thought, oh my gosh, ripple is amazing. It's like the future. Like I was so obsessed with ripple. I tried to do a women's, basically a remins company utilizing ripple. And that went nowhere, thankfully. I guess maybe not thankfully, but I think in hindsight, it was a good move. And then fast forward to 2016, move back to the States. I want to focus full-time blockchain crypto. And I try to do a blockchain-based accounting for small local governments that, again, went nowhere.

and I was trying to pitch all my technical friends that studied computer science. This is like 2016, you know, and I'm pitching them blockchain so it wasn't sexy. Plus I have no relevant background, no relevant expertise. Like I should not have been doing that at all. But just trying to get involved anyway, I can. 2017 got really lucky. You know, my portfolio had increased enough in value where I could launch a fund, you know, as everyone did in 2017.

But I thought, okay, I can't build anything myself and I can't convince anyone to join me to build something. But what I can do is I can deploy capital to the best entrepreneurs, to the best builders. And that's my way of contributing to the ecosystem. And so I knew nothing about funds. I teamed up with a good buddy of mine, Dan Patterson. He actually, he was a private equity guy for a number of years. So he knew all about fund operations, fund set up, fund structure.

So we launched the fund in Polynex's Capital in July 2017. Operated that for a number of years. It's still operational today. But it's mainly a vehicle for my capital, his capital. We family and friends money, nothing major. What we kind of quickly realized is that, okay, we needed to focus and specialize on a specific niche within crypto to really outperform. And luckily, I started to get down the rabbit hole of NFTs.

And around the end of 2018, 2019 is when I really dove deep because I went to a conference. And at this conference, I met someone who basically, long story short, you told me, okay, NFTs are going to be the biggest market in the world because all you need to access this market is internet. So 4.6 billion internet users, that the number is going every day. And then it's attached to this global and sensible 24-7 financial system that is crypto, right? And then so the ease and cost of doing business is basically zero. You can transact with someone in China, UK, Venezuela, like essentially seamlessly,

comparative to today's financial system. And then you add an NIFTs, which are, you know, you can now turn every single digital good into a tradable asset. And on top that, they're like user-generated assets. It's not like you need some big central authority to issue this stock or issue this asset or whatever. It's just anyone can make one. So right away, I was like this 100% is going to be the world's biggest market.

Like user-generated markets like on this global financial system. system like this is crazy. So we started researching investing like crazy. That was basically February 2019. Launched the fund. My personal capital, September 2019, purely focused on NFTs. Fast forward summer 2020, started raising capital for that. No one liked the idea. Everyone hated it. And then got saved by Defi Summer starting to fade away in September. And NFTs got hot within crypto during September. And all those people I previously pitched, a lot of them, they come me back and said, hey, I want to get involved. And then was able to launch with some outside capital come this January and now just focused full-time investing in the IT sector. That's amazing. Well, thank you for that introduction.

I love the Ripple piece of it, too. Ripple plays such a part in everyone's personal journey in crypto. I remember I was at a, I think it was the MIT Bitcoin conference in 2015 and Joey Edo was talking. And he was talking about the journey that you have to go to get into the space. You know, you kind of start with Bitcoin. And then you're like, oh, Ripple's over here. Let's let me check out Ripple and spend some time on it. And a lot of people kind of go down the private blockchain hype cycle. And you kind of have to find your way. And I love, the approach that you've taken in terms of thinking about your career, in terms of finding a specialty place where you can immediately become one of the foremost experts in the world on it,

because it's so nascent. In a lot of ways, I identify with that, you know, being at Fidelity, trying to work on something that wasn't very popular, wasn't one of the mainline businesses. What made you decide that NFTs in the Metaverse was that thing? Good question. So for me, I'm not technical. I'm not necessarily a numbers person, right, whatsoever, which is kind of funny operating a fund. But what I loved about NFTs was that they're not pure financial assets whatsoever. They're kind of like, they're useful as different sorts of purposes. So like, you need this sword to defeat the final boss or defeat this boss in the video game. You want this asset to display your status. You want this asset to join this community and kind of

talk about this collectible or whatever. And having all these different reasons for people buying in selling these goods, adds in a ton of weird and interesting dynamics. And it makes it more like, quote unquote, human comparative to crypto, which crypto is like mostly a pure numbers game. It's like mostly about mathematics and code. And number go up is like the ultimate objective in crypto for NFTs. There's so many different, again, yeah, there's so many different reasons by people are using these things. And yeah, I just found it much more appealing, I think from my personal kind of standpoint. And yeah, again, with crypto, you're dealing with just an order book. with NFTs you're dealing with people.

And I thought that my personal skill was like, lend itself slightly better in that arena comparative to crypto. Yeah, that makes a lot of sense. So just stepping back, you know, we use this word, the metaverse, but what does this mean to you? And how would you define what the metaverse is to someone who's not familiar? Yeah, it's a really tough question to answer

because it's kind of like saying internet to super, super broad category. And like technically, you know, the metaverse exists right now in Discord and Zoom and Facebook even. And that's like, you know, I guess in theory, not technically. For me, the metaverse is about rights. It's about user rights specifically. So I think that the metaverse is only possible if the users can truly own their digital goods because no one wants to spend a lot of time, money, and effort into a digital environment

if they can't own their stuff, right? Like, you know, Facebook could build the coolest virtual world game and in the world and everyone could be there and using it. But if at any time you tweet out, like screw Zuckerberg and your account gets deleted with all your stuff, that's like a pretty dystopian world. And not many people probably want to live there or exist and spend a lot of time there. And for me, it's about like user rights. So it's like if I can own all my digital stuff, so we have property rights in the physical

world. Someone comes in and steals my computer. I can call it police and they can arrest that person and return my computer. Why doesn't that exist in the digital, right? So that's just like a basic question. And I think that NFTs and blockchain more broadly is answering that. And I think that that was the missing piece to the puzzle to enable this, this metaverse, right?

And so I think that a lot of people see it as Ready Player 1, which that's like the ultimate goal. I think we can have it on our regular computers, desktops, cell phones, whatever, as long as we have that property rights, where it's flipping the paradigm of the current internet from value extractive of the user to value additive. I think that that's kind of the main thing here. Yeah. And so you don't think that VR and AR is necessarily a prerequisite for the Metaverse, it sounds like. Do you think that it'll be staged where we're engaging through traditional front doors and then eventually it's a virtual reality existence? How do you think about that?

Yeah, so for me, the Metaverse is mostly about user rights, specifically property rights. And so that's kind of the main prerequisite. And I think that the technological immersion of our communications like technology, because we went from like the telegraph to the telephone to the, you know, now we're doing video calls. Then fast forward will be like virtual headsets and virtual rooms and stuff like that. That's where we're going to head no matter what. But I think that you could have those environments controlled by Facebook. And sure, it's like a quasi-metiverse, but it's not like the true one.

The true one has to be with user ownership and blockchain-based assets in it. And it truly has to be, I would argue, not controlled by one company. So it needs to be not only the money of a system like that, but I would say the kind of the real estate or the common property needs to be something that Zuckerberg can't shut down. 100%. Yeah. I think number one is kind of like the assets. So owning the actual digital goods. But then you're on a platform that in theory is controlled by some company that can just shut it down or shut your account down. So then you don't have access to that. And that's for the functional side of NFTs. These assets, the functional assets have some sort of purpose or use case within a digital environment. So it would be like a gaming asset, you know, a sword with 10 attack damage or whether it be a piece of virtual land, like you can build this virtual land. For things like art and collectibles aren't attached to a platform or some sort of digital

environment necessarily, that's kind of separate because you can have that and, you know, have no issue with those assets at all. So yeah, I really do think that step one is really ownership of the assets and then step two or three, maybe four, maybe. is going to be kind of the, I guess, file coin vision of a totally decentralized infrastructure where we don't have to rely on Facebook shutting us down because Facebook itself is like decentralized. Right. What are the categories of necessary, what are the prerequisites for building the metaverse at scale? Kind of the ready player one kind of vision of what this could be.

Obviously, you need decentralized money. You need decentralized storage, centralized compute. I mean, what else needs to exist in order for this to actually work? And that is such a good question. I think everything you mentioned, it's like every single ICO dream in 2017. Like, if we were able to enact all of those things, then we'd be really, like, we'd be there, basically. But yeah, no, I think you're right. I think it's decentralized money, decentralized compute, decentralized storage. It just, yeah, we have to be on within environments that instead of like, don't be evil,

it can't be evil. That has to be the prerequisite for the metaverse to actually, the true metaverse to actually emerge. And it's going to take us like forever. It's going to take as many, many years to actually get there. And I think it's going to happen in stages. It's not like, oh, ready player one today. So it's a really good question. What do you kind of think? Besides what you mentioned before, any other things that we're missing? I think a lot about just what are the open source communities that are going to actually start to build this. And so if you think about the internet and the groundswell of just academics and grants from the government, you know, governmental agencies that were building towards this future, that propelled it in a lot of ways.

And I guess you see that in crypto, right, where you see these, you know, large, huge open scale projects that are building towards it. So I think a lot of this is going to come out of the open source community. But the fundamental tension is the one that you pointed out where you'll have the centralized companies versus the decentralized companies. I really wonder how that goes. And, you know, whether or not there will be companies that almost decentralized themselves as a way to get there. I mean, what's your perception? Are there companies that actually are building

towards this future right now, or is this kind of something that is further off? So I think there's people that are building the prerequisites that you mentioned before, like, you know, Filecoin, there's Gallum for compute and stuff like that. So there's like those kind of key pieces of infrastructure, and those are years and years away. The more relatable platforms that are being built or have been built today are these simple virtual worlds that we're seeing, cryptosals, the central land, son-unus-based sandbox. Those are kind of very simple initial. I call them like the pre-napsers because it's not, we're not nearly an abster. That'll be, you know, a couple of years. Then we're going to have an iTunes moment. That'll be mainstream

and Spotify where it's like, it's like totally easy. Everyone's using it. So I think we're probably a decade out at least from that. But also I'm like super wrong with all my predictions. So who knows. And then yeah, I think it's going to be there's people doing the small pieces here and there, but I think it's going to take a long time to actually come to fruition, but these virtual world platforms, what makes them so exciting and so much kind of like a quasi metaverse is that the asset ownership is decentralized. You can own this piece of land and you have unlimited optionality of what you want to do with that land. So if you want to make a gallery, no problem, if you want to make an e-commerce store, you can do that. If you know how to code,

you can make a small mini game. So I like the ability for people to, they have unlimited optionality and what they can build. That's great. It's kind of like metaverse is all about rights and optionality, essentially. And then also on top that, they have true ownership. But the final piece of that specific thing is decentralized compute and storage, right? But that's almost a separate piece of the metaverse puzzle, because those are going to be these open protocols that are blockchain-based in some sense. In a lot of ways, what this is going to look like, I almost think you read science fiction for a vision of what the world might look like 30, 40, 50 years from now. And people have been talking about this for a long time. And look, like second life was kind of

in this van, right? People spent an unbelievable amount of time in second life, and I think probably still do. So this is something that people have been building towards for a while. Yeah, no, 100%. And that's why to me it's like, okay, now it's kind of, so the conversation I had with that guy at that conference when 2018, that's when everything clicked with me. It was like, he was like, listen, the metaverse is not possible because of NFTs and watching. It was impossible for, you know, kind of already exists in second life.

people were buying and selling land, clothing, avatars, etc. So that economy already existed, but making it kind of open and permissionless and the ability for anyone to go in there and starts getting involved with is very, very exciting. You can't have people in the second life can be join into that, the financial part aspect of that if they live in some other country that isn't integrated into their financial banking systems because I think it's mainly Europe and the U.S. and North American countries, they were able to access that. And so it's like basically having anyone be able to contribute is massive. And also being able to earn is essential for obviously life.

Right. So you need that for the Metaverse to really come to fruition. And do you see NFTs as that critical infrastructure that will just secure property in the metaverse? Is NFTs the thing that will be the digital real estate tool? It will be the tool to provision access to certain goods. Have we found kind of what that infrastructure is in the form of NFTs? Yeah.

I think obviously they'll evolve from where they are today. But fundamentally, I do think NFTs are that kind of key piece of infrastructure for property ownership in the digital world and how they're going to look and evolve. It's going to be really crazy because I've been thinking about NFTs a very, very simple, kind of two-dimensional way, you know, simple image, video file, whatever, kind of IP, connected to some blockchain token. I talked to a company called like Alethea, AI. They're doing like this AI that you can integrate basically a personality into your

NFT, take your crypto punk, give them TPT3 essentially and make them talk. That's like, you know, expanding what NFTs are capable of. So yeah, very plainly, I do think that NFTs will be that the property rights, but then what we're going to be able to do to that and add on to that, it's going to be very, very interesting going forward. It's like we're not able to kind of predict Uber back in the AOL days of the 1990s, but we do know that those applications, like the Uber or whatever that might look like of NFTs is going to come out after X amount of years. I think you're right. I mean, in the insight around Uber was, okay, now you have this piece of hardware in your hand that you have a GPS tracker and you can

help something and you can get something delivered to or you can get picked up. And with NFTs, I think it's this can secure property in a digital context and we can prove that it's scarce and we can actually build communities around this infrastructure. So I think you're absolutely right. I know it seems small compared to what we're talking about. We're talking about a metaverse and talking about virtual worlds, blah, blah. But property rights are the basis of like all successful economic system. So it's like that is the bare bones of what you need in order to start going forward, in my opinion, right? So I think that once, now that we've unlocked property rights and property ownership, that's when like this is now when the fund starts. This is like when the

experimentation will start in the next 20, 30, 40 years, like who knows where this is going to end up, but it's like opening up the GDP of the internet. Whereas before it's kind of, it wasn't necessarily closed, but it's attached to the physical world. Now we're actually opening up the GDP of the internet in the internet, if that makes sense. It makes total sense because when you think about how limited the centralized internet is, you know, we don't own our Twitter handles. I could establish a chat room or, you know, a website that hosts people congregating on Zoom or something like that.

But I don't own that, really. It's really owned by the company that I'm paying rent into in the form of, you know, using their services. And what we're talking about would be truly a, you know, user-owned domain within this internet or metaverse, whatever you want to call it, kind of the internet 2.9. So it's foundational as our payments, by the way. And I think that was kind of the first thing that got solved before we got on to NFTs. Yeah, no, totally.

I think what's really exciting is that all these, yeah, like I mentioned before, like the 2017 ICO bubble, all these companies that have these crazy ideas, these are all possible, maybe not at the time, like, you know, because people thought they were going to all be live today and people were going to be using this completely decentralized internet. But they're all possible now because of blockchain-based technologies. And we're just, we're going to slowly, like technology is an unstoppable steamroller that It just constantly keeps grinding forward. And so these things will happen when I have no idea, but we're headed towards that

direction no matter what. Therefore, that means the metaverse is inevitable. It's not like it is a fantasy today, but it is something that will happen regardless of what we think. And if you think about this through the internet analogy, I wasn't really around for this part of it. But if you think about the evolution of TCP versus OSI, there were people that definitely saw the vision of what internet 1.0 was going to be before the browser was invent.

And you could have known that that was going to happen, but been dead wrong on the actual architecture that it got built on. You could have thought that OSI was going to be this. There's that saying OSI is a beautiful dream, but TCIP is living it. And the network effect built around TCPIP and it was off to the races. I could see that happening in a big way for a lot of people within NFT space, where all public blockchains actually, where there are big bets being made right now. And the difference between the internet era and the blockchain.

era is that you're actually putting dollars to work in those protocols and they're holding value. So as an investor, how do you think about platform risk and which platforms you want to get behind in terms of what's going to power this stack? Yeah. For me, it's probably the most important thing when looking at a potential investment is what underlying blockchain does this asset or does this protocol exist on? And I think what you were kind of mentioning before about TCPIP was that Ethereum right now, It's not highly scalable and maybe very expensive and a little bit slow compared to these new fangular blockchains.

But the network effect around is so powerful that it's pretty hard to defeat today that could change in the future that maybe that's just the one we use going forward. Maybe E2.0 just crushes it and becomes very scalable, very cheap. But yeah, we're seeing like flow, for example, that's also coming out. And that's very scalable, very cheap, right? It's also pretty centralized. So there's kind of these tradeoffs. One thing that terrifies me, I know this is not exactly. what you asked, but one thing that terrifies me is that people, like users don't care in general,

like users don't care about their data. When Facebook's like, hey, we got hacked and all your data's gone, like, no one really cares. It's like, that terrifies me because I want people to actually care about the ownership of their digital goods. But if they're all using some, quote unquote, blockchain, that's actually centralized, then it's like, well, we haven't really gone anywhere, right? We're kind of in the same position. So I don't know how we're going to convince people to care. I think it has to be, we're going to point to things that, when people get banned from certain blockchains, it's like, wait a second, how is that, how do they get banned from my blockchain? It shouldn't be possible. That's like the only thing that I'm

not hoping, but kind of hope happens where people become more aware of their rights or the true rights on the internet. And so yeah, I think, yeah, going back, like, number one thing that we look at is what blockchain does this exist on? Will it be around in three to four years? Because anything beyond that is really hard to determine. Yeah. So, yeah, I guess there's not really a clear answer in terms of who's going to be the winner today. But really, there's a couple players in the blockchain space that are the players. Besides that, it doesn't really, I don't really pay attention to anything else. Yeah. As you're talking about users not really caring, it reminds me of just all the discussions we have around private key management. And, you know, even people that are holding one

asset at Bitcoin and not understanding how to secure it themselves. And these are big usability challenges. And I think in certain ways, we still need to solve those core fundamental problems in order for this Metaverse to actually take off because you don't want to be someone who controls a digital service with the GDP of Rhode Island on the Metaverse, but then have that be held in a custodial account where you don't even know how to secure it or that thing gets hacked and the whole thing goes up in smoke. So how do you think about just personal data sovereignty in the context of the Metaverse? Yeah. Okay. So going off that a little bit, so the two most popular platforms probably of the past six months or so have been Nifty Gateway and MBA Top

These platforms are both, I mean, so Nifty Gateway is centralized, but I mean, they're amazing, right? Duncan and Griffin just crush it, like no fault on them for being a centralized platform. I think it's actually needed, but it goes to show you number one platform centralized, right? Mee a Topshot, it's not, I wouldn't say fully centralized, but it's quasi-decentralized in some sense, but it's pretty much kind of centralized, and it's also been crushing it, right? So it's like the two most popular platforms have been completely centralized and people don't really, don't really mind. They actually like it because they don't have to deal with the blockchain.

So that's just kind of one thing to point out, hoping that we develop better and better wallets and processes to go through to interact with the blockchain. It's kind of shocked me how long it's taken us because I thought 2017, I was like, oh, no way people are going to be using MetaMask in like two years or something like that. And we're still using MetaMask. So I'm hoping solutions get better, but it always takes longer than I think. And in terms of data sovereignty, yeah, I mean, that goes hand in hand with kind of this vision of people being able to own their stuff.

So it's like you, in theory, we'll be able to own your data. That's kind of also the vision of blockchain more broadly. And then also, so, yeah, I think a lot of what I'm talking about for the Metaverse aligns with the values of the blockchain-based internet, right? They kind of go hand in hand. I guess the Metaverse, the only way it differs slightly is because it's more, number one, like more of a slightly more immersive environment. It's like more like human environment where you're like doing fun things instead of just

like pure financial or kind of code related processes. And then besides that, it's, yeah, I guess just like it's more of, of living inside of these environments compared to just purely interacting with them. Yeah, that makes sense. And as you're talking about flow, I mean, the interesting dynamic there with flow

is that they're in with Dapper, is that they're doing things that you really couldn't do with a purely, you know, decentralized chain. I mean, going out and negotiating contracts with the NBA and the Players Union. And the fact that you have the LeBron James IP

is really bringing a lot of people into that ecosystem. Now, that's very different from a user-generated meme. or something like that, which doesn't require licensing. And so you've spoken about monetizing memes. And so I'd be curious to use that as kind of a jumping off point into what you mean about this, monetizing memes and how you see that playing into this whole concept of NFTs in the Metaverse.

Yeah, I think, so I tweeted like NFTs are monetizable memes. And what I kind of mean by that is NFTs are basically, especially in the non-functional side, like the art and collectibles. It's just a story, right? And Nick Tomato wrote a great blog post about this talking about NFTs are the story. story and the best story wins. And you can see like, yeah, I don't know, you know, build a story of like people, artists who's created one piece of art every day for 13 years. Like that is a very inspiring story and, you know, definitely has something to do with the reason why he's one of the

top living artists in the world now, right? Not only that he just grinds, but also like what what a compelling narrative can you build in order to to promote this. And the fact that these assets can, you can fit a story inside of a, in a JPEG, for example, and then it has some monetary value that that happens to be built on this frictionless global financial system. It's like that is a crazy, crazy powerful thing because these stories can go viral, just like a meme does, and that meme can accrue value very quickly. You can argue that the Bipol 5,000 every day, what other piece was called, that sold for $69 million, that is a meme that went viral on every single news station ever

and sold for that, that immense amount. Of course, like most of the news came after the high sale, but still, it's kind of like showcasing that you can have a story that goes viral throughout the internet, which is a global. It's not contained in Europe, not contained in America. It's global. And then it's attached to the system where the payments are frictionless. It's like you're going to create immense value there. So that's kind of the concept.

And then I was talking to Alex Massimesh. I don't know how to pronounce his last name. It's a French entrepreneur who found it, French American, I think maybe entrepreneur who founded Showtime. Maybe he's not American. But anyways, I know he lived in America for a little bit. But anyways, he was talking to me about a mean marketplace that was built utilizing NFTs. I mean, he was basically saying, what if you could incentivize people that create the best means they could sell it on this open marketplace?

And, you know, there'd be, as it means spreading, there's using token incentivization mechanics to, every time you retweet, you earn one token or whatever. And then the creator of that gets a certain percent of that value accrual. And the more viral it goes, the more value accrues to that creator. So there's all sorts of like really interesting things that we can do through NFTs and through blockchain-based token systems, specifically to do with me. memes. And, you know, memes are like the most powerful forces in the world. Like, you know, Elon is always tweeting about him and saying he owns the means or controls the memes, controls the universe or something like that. So yeah, I think that there's, there's a lot of empty space or like green pastures on the specifically memes and OFTs and how they're going to evolve. I don't

know, but I know that by financializing memes, you're going to create a really potent mixture and a lot of opportunities. And I guess it probably has some overlap with this idea of social tokens and some of the projects that we're seeing with BitClout and things like that, the ability to almost have value attributed to not only a meme, but to a personality. Yeah, I think I call our firm a Metaverse native investment firm, because I do believe NFTs are the key to the Metaverse, that the missing piece has needed to enact that kind of vision, but also we like to include social tokens as well. Any of these kind of newfangled blockchain-based assets or items that can kind of bring forth

the Metaverse. So Social Tokens is something that we look at. I think we haven't unlocked. The aha moment for Social Tokens has not happened, but the idea of having some skin in the game with the influencer or whoever that you love so much makes a ton of sense to me, like being incentivizing their success and also getting special access and doing all sorts of using that token from a creator standpoint, using that token to give your community members all sorts of cool stuff and gifts or tipping or whatever or access. I think that's really, really exciting. And yeah, I don't know how it's going to evolve, but I just had this feeling that it's going to be very, very large. The only thing that makes me hesitant or, you know, not as bullish on

social tokens compared to the NFTs, the NFTs, I understood it quite quickly. I understood the kind of the opportunity quite quickly. Bitcoin took me forever. It took me weeks to really understand. So maybe, hopefully it's something like that. Well, the social tokens, I'm like, I can see potential applicability here, but it's not popping out of me. Is that a signal that, hey, maybe we're a couple years away, and it's not yet time. But, you know, I don't know. What do you kind of think about social tokens? I'd love to hear your take. Well, I think you bring up a great point around it being simple. You know, complicated bonding curve schemes and things like that that are difficult to explain, I think is challenging. But people do react well to just a price. So maybe some of these that are

coming along just have a price that's liquid and trading every day makes it easier for people to understand. I think there are big questions just on social tokens in terms of how you build up the social graph. We've already seen that kind of become a controversial issue with BitClout, where they scrape Twitter and kind of paste it on the social graph. But natively building up that social graph to me is kind of a key challenge. Definitely. Yeah. No, I think BitClout is super interesting because it was just so controversial. And I have friends that either love it or they literally hate it. And for me, I'm still kind of trying to figure out. So I don't really have a strong opinion here or there. What do you kind of think about it? Well, we don't hold any BitClout.

we don't have an opinion kind of as an investor, but I think some of the controversy actually makes me want to understand it a lot more. You know, controversial projects, it's better to be controversial than to just be completely ignored, I would say. And so it's going to be really interesting to see if some of these, you know, YouTube influencers and some of the folks that have massive followings actually activate their accounts and start to engage their fans on it. So I think it's still pretty early, you know, to make a judgment. Definitely. And whenever you have a product that gives that strong of feelings. That's something you have to be like, okay, what is this?

Right? Because people either hate it or love it. And that's where you're like, okay, well, you know, somebody's here. Yeah, they have an opinion, right? I mean, so how do you think about this as an investor? There are various ways that you can access this thesis around the Metaverse. I mean, you could be investing directly in NFTs. You could be investing in ETH if you think that ETH is going to become the money for the

metaverse. You could be investing in equity of companies. You know, where do you go? How do you think about this? Yeah, no, really good question. So we like to, you know, ideally we want to be the one-stop shop for NFTs, purely focused on an NFT space. And we want to be able to invest in the pre-seed, seed, series A, equity round.

We want to invest in the token that they launch. We want to invest also in the NFT that they launch. Our first fund that's actually purely focused on tokens, and it's more heavier weighted towards actual NFTs themselves. And then we have an allocation there towards crypto tokens that relate to NFTs. That next fund is going to be a venture fund that is going to be venture and token heavy, you know, SAFs and stuff like that, that have a minor allocation of NFTs. And basically, when I launched in 2019, the equity opportunities were just very scarce.

Like there was not a huge number of great people entering the space and great investable opportunities, especially on like the infrastructure side. Like there was kind of the marketplaces and they were already kind of set and not too much activity happening there. And now it's totally a 90 day difference where we're seeing explosion of people with incredible backgrounds and multiple exits from this company, that company that are now entering space building great products. So that's really, really exciting. So on the venture side, I see two main buckets. One is the trading infrastructure or like the financialization of NFTs. This is like marketplaces,

loan platforms, insurance protocols, fractionalization protocols, anything to do with like kind of the financialization of NFTs, right? That's bucket number one venture. Bucket number two is, okay, now you have your RFT. What do you do with it? It's like the experiential layer. How do you experience this asset? And that could be the Instagram of NFTs, which I, you know, I think a lot of people are looking at. And that's, to me, that's more of a web 2.0 experience with Web3 enabled in it. But it's very, very exciting. I think it's going to be very, very popular. But one thing that's maybe a couple years out, maybe it's actually sooner than we think,

but is the virtual world of NFTs, if you're able to make a virtual world and make the NFTs operable in that world, that's very, very exciting to me. So if there's a Pokemon game that uses NFTs, you don't need their permission. You can take their assets and start making the Pokemon game actually usable in that world. So if you and I see each other in the world, he's, hey, Matt, let's battle, and my fire Pokemon will show a flame animation or whatever, right? So we could battle. People could watch us.

People could make bets and talk to us while we're battling, whatever. Whoever can accomplish that, that's like the ultimate aggregator for NFTs because it's like everyone want to be there. It's just like the Ready Player One kind of vision where everyone wants to be in that one universe. So anyways, yeah, I think on the venture side, those are the two big buckets. The trading infrastructure or financialization and the experiential. on the asset side, so that, you know, I'd say there's roughly five buckets that I, I like to use for

NFC assets. Collectibles, these are assets with little to know utility. They're like baseball cards or crypto kitties. Number two, game assets, they're assets with high levels of utility within their universe. It's like a sword with 10 attack damage or something. Number three is virtual land. These are like user-owned social, e-commerce, gaming, creative platforms all roll into one. Number four is cryptobart. It's just art tokenized, put on a blockchain. Number five is other. It's like domain names, property, titles, insurance. All these other are smaller categories that are small today, but one day will be very large. So as a firm, we really like to focus on collectibles, game assets, virtual land. We have a very minor allocation of crypto art. And then the other category,

I think those markets are, these use cases that I mentioned right now, they're like kind of more toys or fun things. The other category, that's where it becomes like more real, like, you know, insurance and property titles and stuff like that. That's going to take some time. But I think those use cases specifically are going to be orders of magnitude, potentially larger than these kind of more gaming and art and stuff like that. But what makes the NFTA is, Direct NFT market's so exciting, in my opinion, among many things, but one of the most important factors is I think that the liquidity, at least right now, is kind of pooled together. So the art and the gaming and the virtual land, it's all kind of one, compared to the traditional

world where you have art over here, and art market doesn't really interact with the game, you know, the video game market, and the video game doesn't really interact with this market, right? So I think that combining them all together is really, really exciting and going to create, I don't know, profound impacts that we're not really quite sure of today. Yeah, I love the way that you broke that up with the taxonomic. I remember I did a similar thing when I was just trying to wrap my mind around public blockchains writ large back in 2014-15 time frame. What's trying to be money? What's trying to be a smart contract platform?

What's a distributed compute system? The thing that you kind of jumped out to me when you're talking about the other bucket is domain names. Do you think that top-level domains are a key kind of infrastructure component here? Does any of this work without a icon that is not owned by icon? Yeah. No, that's such a good question. Domain names is something that I need to dive deeper into, and I have a big kind of question mark around just because, yeah, I think icon or I can, however you pronounce it, that works

because we're kind of forced to use it, right? Because we're not forced to use .eath or we're not forced to use H&S, like Handshake or whatever. Like people have, it's just whatever system develops and whatever system gains critical mass. And that is, to me, it's questionable because I can have Andrew. Dot Eath and I can have Andrew Handshake and Andrew so many others. I have no idea which is going to win. It's going to take a very, very long time for that to play out. Even domain names, like, yeah, we're forced to use that.

So, of course, it's going to accrue the most value and be the most popular. But how that plays out, I'm not sure. That's why we don't really get involved in the domain space because it just, we're too uncertain and we feel more certain about other asset types. Yeah, it's something I'm definitely trying to stay up on as much as I can because if you believe that these domains are going to be the equivalent of owning land in the Metaverse, then, you know, you'd want to own the New York City or own the entire West. It'll be interesting to see how these evolve.

And we'll have to have some sort of unification around some standards here. And there can't be, you know, hundreds and hundreds of top-level domain systems that ultimately win will probably have a power law, is my guess. Totally. Yeah. And you mentioned like virtual land or virtual real estate. I think domain names is what we equated to virtual land and virtual real estate before. And now we're kind of transiting that into the NFT space.

But now we can actually own pieces of virtual land, which I think is very exciting because, as I mentioned before, the optionality that that gives the users is unlimited, right? They can build anything they want. And I think that having that optionality and the property rights is like the closest inclination that we have to the metaverse is the closest thing that we have. And so I always like to use this example. I have a buddy. His name is Nate. He's the founder of Asaig Arts. And he opened up a shoe store back.

I think it was, I want to say, I don't know, 2019 shoe store and cryptoboxels, right? So avatars could walk in. They could check out of shoes. They could buy his shoes and put them on their avatar. And it's all through OpenC, it's all seamless and quite easy. And that to me is hugely impactful for how I thought about it. Because I was like, wow, people anywhere, no matter where they are in the world, can start a business totally native to this environment and start earning revenue.

And I always joked. I was like maybe one day he'll open up, you know, five more locations in Cryptovoxels, open up into Centralland, open up Zonium space, right, these different virtual worlds. And then eventually after he has like 30, 40 locations, he'd go public with a social token. and that social token could give users, you know, 50% of the revenue and then also governance rights over the next shoe design, like all these kind of cool kind of add-ons that we could do. And of course, like that would be a security. So there's like different, you know, we have to get that figured out.

But the fact is like that's possible today. And, you know, it's something that we could do right now. And that is going to open up just massive, massive doors for the GDP of the internet again. And also I heard a story of, I think it was one of my friends that maybe it was their friend or something like that. But they're in the Philippines. They needed a loan for their house or something like that. And they got a crypto kitty. I don't know if they got it from way back one or if they were gifted their house. It was a Gen Zero. So it's a pretty valuable one. They put it on this NFT-Fi loan marketplace, got like a $25,000 loan that day and then was able to go build out their house. I forget what they were doing with that money.

And then payback the loan after, I think it was a 90-day term with the certain APY percent on top of that. And like, that is incredible. Incredible. Right. So there's no crazy amount of paperwork that you need to sign and know, of course, again, from a regulatory standpoint, I don't know if that's kosher, but I think that what it enables is truly powerful. And again, it's like all about this to get a digitally native asset, put it on this platform, was able to get money, digital money for that, translate that into quote unquote real money, go do whatever they need to do, transfer it back into digital money and then go about their day. So yeah, I just think that like we're just absolutely sketching that the bare 1% surface of this and it's going to get a lot

weirder and cooler. I totally agree. And I think people think through analogies. So one of the things that I've been talking to folks in my network about is just think about the places that used to hang out when the internet started for you, you know, not when the internet started itself, but like when I was in high school, I used to run cross country and I used to hang out on message boards talking about cross country and track on like diStat and let's run. But in the future, that will be a metaverse context. And you'll go and you'll hang out online with people and you might have a headset on. You might have a like a VR goggle on and you'll be doing the same type of things you were

trying to do in Web 1.0 days. It'll just look totally different. And you might have to pay to get into one of those rooms or you might be earning credits to do something. But in a lot of ways, these are just communities and different ways to organize communities. This is how I think about it. Totally. And like right now, I'd say that Discord is kind of the place where a lot of the NFT people are hanging out in. And I've made incredible friends from there, which is really crazy because I'm not, I didn't initially set out to be like, I'm going to make friends. It's more of a financial focus. But it's really cool that that happened. And also it's really cool that people attend meetups inside these virtual worlds.

There'll be pitch meetings where people will showcase their product and people can kind of comment and V for voice chat or text chat and just kind of talk to each other. And it's creating this really interesting weird community that a lot of people, I wasn't around for like the early days of the internet. But all of people that are like older than me, they say this reminds me like the very, very early internet, which I think is really, really exciting. And yeah, it's a feeling that hopefully we can keep that weirdness like going forward. Yeah, keep the internet weird. I agree. So, Andrew, you're at the bleeding edge of this stuff and you have a great newsletter. Where can we send people to learn more about your phone, learn more about the Metaverse and

stay up to date on what you're working on? Yeah. So just DMing me on Twitter is probably great. My name is Andrew Steinwald. And you can just kind of search for me. And I have a newsletter and podcast called Zima Red. And if you just Google Zima Red, it should be, you know, hopefully the first thing that pops up and read and listen there.

Well, I definitely will recommend everyone go check it out. you're really, I'd say you're way ahead of the game in terms of picking a niche here that I think is going to be just enormous. So really looking forward to monitoring your progress as you go forward here. Thank you so much. It was awesome chatting and I hope to chat with you soon. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island.Vc. To listen to all of our podcast episodes, please go to On the brink dashpodcast.com or just click on the tab in our website. Thanks for listening.