Unchained - How NFT Platform OpenSea Plans to Maintain Its Competitive Advantage - Ep.232

Starting point is 00:00:00 Hi everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago, and as a senior editor at Forbes was the first mainstream media reporter to cover cryptocurrency full-time. Follow Unchained on Twitter at Unchained underscore pod, where you can find all sorts of content ranging from my weekly newsletter to updates on my upcoming book and a whole lot more. Khyper's dynamic market maker, DMMM, is the first DFI protocol designed to adapt to market conditions to optimize fees, maximize returns, and enable extremely high capital efficiency for liquidity providers. Today's episode is sponsored by EY blockchain. Ernst & Young is committed to supporting integration of the world's business ecosystems on the public Ethereum blockchain. The crypto.com app lets you buy, earn, and spend crypto, all. in one place. Earn up to 8.5% interest on your Bitcoin and 14% interest on your stable coins, paid weekly. Download the crypto.com app and get $25 with the code Laura. The link is in the

Starting point is 00:01:13 description. Today's guest is Devin Fencer, co-founder and CEO of OpenC. Welcome, Devin. Thanks so much for having me, Laura. I'm a big fan of the podcast, so it's really an honor to be here. Great to have you. Why don't you tell us the story of how you got into crypto and came to found OpenC? Sure. I got introduced into crypto in 2017. I followed Bitcoin peripherally before that, but I suppose I was a little bit of a late adopter, although sometimes people nowadays, 2017, maybe it's considered early.

Starting point is 00:01:49 I don't know. That's when I really fell down the crypto rabbit hole. Probably a pretty traditional path. There's a lot of people in Silicon Valley at the time. I started reading all the white papers, going all the meetups at the time you could go to in-person meetups, which was a lot of fun, and just got really excited about the long-term vision of crypto. And in particular, very excited about crypto going beyond just financial technology. So most of the applications at that time were around capital formation in the form of ICOs or financial

Starting point is 00:02:23 products, exchanges. is what I was interested in sort of what was called, I think at the time, the tech thesis around crypto, which was how does this actually influence kind of the underpinnings of the internet in a much broader way than just transforming finance? So that was really what excited me about the technology. And I've heard you say before that, so as far as I understand, you entered YC with a different crypto idea and then CryptoKitties came along. And that was kind of how. you came upon this path of founding Opency. And what was curious to me about that was that, you know, at the time of CryptoKitties, most use cases for crypto were financial. So what was it about

Starting point is 00:03:06 NFTs that made you think that they would eventually become mainstream and become a really popular use case? Yeah. I think at the time, you know, my co-founder, Alex and I, we were really looking for just fun projects. We knew we wanted to do something in crypto and we were just looking around to what was the most exciting thing to work on. And part of it was a bit of naïveness on my part. I hadn't been really that involved in the gaming ecosystem. So I hadn't realized how cool online games had gotten. Maybe if I already knew that,

Starting point is 00:03:39 I would have thought that CryptoKitties was as cool as it was. But I just thought, you know, a digital cat breeding game was fun and interesting. And, you know, the fact that these things were selling for hundreds of thousands of dollars, certainly raised some eyebrows. And then, you know, the deeper you go down, rabbit hole, you realize that what's magical about these NFTs is not just sort of them in isolation, right? If you think about CryptoKitties, technically you could build the Cryptokitty's application

Starting point is 00:04:07 in isolation without a blockchain, right? There's nothing that it really relies on a blockchain, but the sort of effects of the ecosystem around CryptoKitties. So at the time, people were building applications on top of CryptoKitties. So one of the folks who actually currently works at OpenC built kitty hats, which is a way to accessorize your crypto kitties with a hat. You really couldn't build that type of application without some form of true digital ownership of the asset and the ability to kind of move it from just the Cryptokitty's website onto an external marketplace or onto some other game. And that was a really fascinating concept to me. It was this idea that you could have this new type of digital ownership that would allow for a lot more creative use cases.

Starting point is 00:04:54 than what you see with traditional digital assets. And since NFTs are still something that people are wrapping their minds around, can you just answer the simple basic question of what is an NFT? As many probably know, NFT stands for non-fungible token. And the way I like to think about NFTs is there's sort of a digital item with some of the things that are really nice about physical items. So when you own a physical item, you can kind of do whatever you want with that. thing, right? If I own a cup, I could give it to a friend of mine. I could throw it in the trash,

Starting point is 00:05:30 go and put it for sale on eBay, go and put it for sale on Craigslist, right? There's lots of different opportunities for things I could do because I really own that item, right? I have full property rights over it. Now, contrast that to a traditional digital item, think about your Twitter handle or if you play any online games, think about, you know, an item that you've earned inside of a game. If I told you, you know, go and sell your Twitter handle on eBay, pretty difficult to do, right? You don't really have the same property rights over those digital items that you take for granted in the physical world. So NFTs kind of layer on those property rights to digital assets in a really interesting way that in isolation, again,

Starting point is 00:06:11 you know, maybe they look just like regular digital items usable inside of a game, but with an ecosystem around it, with lots of marketplaces, with virtual worlds, where you can go and take these items, then they start to look very different and much more interesting, in our opinion, than just a regular digital item. So you've been interested in NFTs for years and you've been working in the space for a few years. Why is it, do you think, that NFTs finally took off in the last few months? I think it was a combination of things and the most important of which was really the build-up of a lot of hard work over the last roughly three or four years.

Starting point is 00:06:50 Depends how far back you want to go. I guess you could go back to the origins of Bitcoin if you really want to trace it, trace it that far back. But really the last three years, there's just been a lot of activity and a lot of building in the NFT space. So it started with CryptoKitties.

Starting point is 00:07:05 It started with projects like Cryptopunks as well. But from there, there was so much developer, early developer interest that all of the tooling around NFTs, got a lot better. So, wallets improved. Metamask really improved their support for NFTs and also for fungible currencies. Marketplaces like our own emerged and allowed anyone to kind of create an NFT and immediately start trading it. Art platforms emerged that were specifically dedicated to bringing artists on board to create NFTs and building more of a curated experience. Fiat on ramps onto crypto started getting a little bit better. So you had that buildup of infrastructure such that today,

Starting point is 00:07:48 when you kind of dive head first into the NFT space, there's just so much to explore. Actually, just to rattle off a few other things, there's NFT index funds where you can take your NFTs and put them in, sort of turn them into our New York City 20 that can be traded. There's collateralized loans on NFTs. There's all this really cool stuff. And then I would say there were a few things that really poured fuel on the fire for the NFT space and kind of accelerated that inflection. And, you know, some of them were these really big sales. I think you covered the $4 million people sale. I think you had a large part in really bringing awareness to this space. And a lot of artists, I think, really took note at this idea that you could have a real

Starting point is 00:08:29 business as a digital artist. That was something that, you know, didn't really exist as a career opportunity in a real way. So those types of events really led people to take note of this space. Another example is NBA Topshot, which worked with the NBA to build an NFT trading card game. I think that really accelerated the space forward. So in my opinion, it wasn't one silver bullet. It was a lot of things kind of coming online and really the accumulation of a lot of hard work from a lot of different people. Yeah, I know personally for me that people I know in my personal life who definitely don't have a crypto background were texting me about NBA Topshot. So I thought, oh, this is something that's catching the attention of non-crypto people. And so who is creating NFTs? I know it's a very

Starting point is 00:09:18 diverse group of people. And who are the buyers? Sure. On the creator side, very diverse. Yeah. So we have everyone from game companies that are building NFTs into games. So great examples of that include Decentraland. So Decentraland is a virtual world project where you can own land inside of the world as an NFT. And then if you own that land, you can build stuff on top of it. Even more exciting is that after you've built something on your land, you can bring in NFTs from the art world. And people have created museums inside of the central land. So Cryptovoxels is another example of this. So there's this whole gaming ecosystem that flies a little more under the radar, I would say, relative to the stuff that's happening in the like creator, influencer,

Starting point is 00:10:04 musician side of things. But I think it's actually really exciting and really important to push the space forward. And then the other folks who are creating NFTs, really anyone can go and create an NFT. I was telling someone the other day that I created an NFT where if you bought the NFT, you could get 45 minutes of advice for me on how to build a crypto startup. And surprisingly, people actually bought it. So, you know, the sky's the limit in terms of what you might want to sell as an NFT. It's really, we've seen some pretty strange things. Now, there are more and more influential folks trading NFTs. So Rob Grunkowski, a famous football player who recently launched a

Starting point is 00:10:42 set of trading cards on OpenC, Kings of Leon, so musicians, and really everyone's sort of tiptoeing into it and trying it out. So that's on the creation side. On the buyer side, I would say that traditionally it has been folks who are deeper into the crypto ecosystem them already. So maybe they own a bit of ETH and are excited about the vision of Web3 and therefore checked out a Web3 game and want to participate in it. So sort of at the intersection of

Starting point is 00:11:17 crypto enthusiasts, gamers, technologists, those types of folks, what's exciting to your point around NBA Top Shot is that that's really expanded dramatically in the last six months. So as you said, now there are folks who haven't even heard of crypto or aren't familiar with it who are just fans of the NBA or fans of a particular creator and want to support them in some way. And those types of folks are starting to get involved as well. Obviously, there have been a number of sales that have had eye-popping sales tags attached to them. And I was wondering, do you think that we're currently in a bubble with NFTs? It's a good question. I think it's hard to quantify the NFT bubble, right? Because with cryptocurrency bubbles, you can point,

Starting point is 00:12:04 to the price of ether. You can say like, price of ether is too high or something like that, right? With NFTs, it's not just about like the price, right? So, you know, there was the $69 million sale of the people art. But, you know, it wasn't because the purchaser thought of that as an investment necessarily. It was more sort of a cultural moment. And if you listen to interviews with him, it's really interesting to hear him talk about why he made that purchase. He was really solidifying digital art as a category. So I do think that like all new technology, there's sort of this wave of exuberance and excitement, and then the excitement kind of dies down. That being said, I think if you look deep into the NFT space, you realize that there's all

Starting point is 00:12:46 of this excitement, there's all of this volume and all of these transactions happening on a very, you know, hard to use user experience. And for the most part, some applications have made this easier, but they do cut corners in terms of giving people sort of the full NFT experience. And so I think there's so much that we can do to really make the experience better that I am optimistic that maybe even if, you know, excitement sort of cools down a little bit, that we're really just at day zero for NFTs. I am extremely confident that the design space for NFTs is just going to get wider and

Starting point is 00:13:23 wider and more and more exciting. There's always these sort of local maxima, a little bit of a correction and then things kind of progress from there. Yeah, I will have to agree with you on that. And I'm sure you know more about this than I do. But from what I've been hearing, there's just a lot more coming from a lot of new players. So on that note, how do you see the NFT ecosystem evolving? What do you think will end up being the biggest categories in which are some categories that are kind of quiet or small now, but that you expect to become much bigger? Well, I think the category that has really resonated with people for good reason is this idea, this really simple concept that as a creator and a lot of people are creative, everyone's creative in some way, in my opinion, that as a creator, you can create content and have a direct relationship with the person who's supporting you, right? So contrast that to Instagram, right, where you're uploading your photos to Instagram or your content to Instagram and Instagram's business model is not. going to reward you directly for the things that you upload, you're going to, you know, basically be kind of subject to their platform and their advertising-based business model. And, you know, typically you don't earn much from that relationship with that company. So that's a powerful idea, right?

Starting point is 00:14:39 The idea that anyone who's creative can create content and distribute it to people who want to support them. I mean, I think that's going to get more and more powerful as we lower the barriers to entry for blockchain. So, for example, today on Ethereum, in order to do a transaction, you're typically, typically paying $50 in gas. Imagine if it was only less than a cent in gas. Well, you could have people buy things for 50 cents.

Starting point is 00:15:02 And at that point, you know, anyone who wants to contribute to their favorite artists can really easily do so in a way that, you know, you're not necessarily expecting a ton from it. But you do kind of feel like you have a stake and you could resell the NFT later down the road. And so it's a very interesting kind of hybrid model between you're not exactly investing in that person, but you are, you know, contributing to. them in a meaningful way that and there's some sort of upside as opposed to a pure Patreon type model where you're just pure donation based. So I think that that use case is really powerful

Starting point is 00:15:35 because it's so simple. It doesn't require going and creating a new game or creating a super sophisticated experience. It's something that can resonate with a lot of people. That said, I do think that over time, what I'm excited about is more and more utility being added to the NFTs. So as opposed to just being a pure collectible, having some use case, whether that's a ticket to an event, an item inside of a game, access to a closed group, I think the sky's the limit in terms, you know, there was my use case where you get 45 minutes of my time. I think, you know, those types of things are super interesting as well. So I would say the general theme is greater and greater utility. And if I was going to point to a couple categories, I would say gaming.

Starting point is 00:16:21 is extremely exciting, and event ticketing is also extremely exciting. And I think we'll definitely see continued innovation in the gaming space, I think, this year. Yeah, I agree with that. I've been keeping an eye on the gaming thing, but I agree with you that because of the fees on Ethereum right now, it's probably not going to take off quite yet, but you're right that there are new solutions in the works where it could be right on the cusp of major growth. So I don't know if any of the examples that you just gave fall into the category of what I'm going to ask about. But you wrote this amazing NFT Bible. And one of the topics that you covered was the programmability of NFTs. And you even gave some examples, but I actually didn't know what some of these terms meant like you talked about.

Starting point is 00:17:08 Forging, crafting. The two I could figure out were redeeming in random generation. But yeah, can you just talk a little bit more about what you think is possible with the programmability of NFTs and define some of those other examples. One of the interesting things to mention about NFTs is what is the sort of most generic NFT possible? Well, really all it is is it's who owns this unique serial code, right? So who owns ID, CryptoKitty ID number one, two, three, four, five. And then the ability for the owner to transfer it to someone else, right?

Starting point is 00:17:46 That's really all that's baked into an NFT is who owns it? and the permission to transfer it. But on top of that, you can layer all sorts of other things, right? So you could, you can program into the smart contract that, you know, you take a CryptoKitty and a gods unchain card and you put, you like send them to the same address and then suddenly another NFT pops out, right? Something creative like that. So that's actually, I think I was referring to when I was referring to forging, right,

Starting point is 00:18:19 a game mechanic where basically you take different sort of raw materials and create something new from them. Very under explored in the NFT space, largely because of gas costs, I think. If we're speaking primarily about gaming, it's very interesting because you could create games that involve assets from all sorts of different places,

Starting point is 00:18:41 CryptoKitties, trading cards, Decentraland Land, and create new assets from them. And the game developer doesn't have to have a relationship which uses those companies because they're just NFTs at the end of the day. They all look the same. That's one example of sort of a creative programmability use case. Randomization, the idea there is can you create NFTs that are more randomly generated? And there have been a number of projects in this space, but there's a lot of excitement and some controversy over loot boxes, but could you create on-chain transactions that randomly generate

Starting point is 00:19:16 a set of NFTs? There has been some some work in that area as well. And what did you mean when you reference loop boxes? Yeah, so loop boxes are basically in games, you'll have these boxes that you can open that randomly give you items inside of the game. Let's actually, oh, just one last question I wanted to ask about NFTs. We've been talking about ownership.

Starting point is 00:19:39 I do know that there's kind of some questions around what exactly it is that people own when they own an NFT. What would you say it is that they do own? Well, it differs. So in the base case, so let's take CryptoKitties, for an example, when you buy a CryptoKitty, you own the CryptoKitty, but that doesn't, like, give you the rights to go and sell shirts with the CryptoKitty on it, right? You don't own the rights to the CryptoKitty, unless they change something about how they're,

Starting point is 00:20:11 the copyright. Yeah, that's not what they're selling. Now, someone else could come along and say, you know, make a contract, a legal contract, that, or, you know, terms that says when you buy this NFT, you do get the rights, right? Totally legitimate thing to do. The point here being that all the NFT is opinionated about is just, it says who owns the serial code. And that serial code can represent anything, right? It could represent real rights.

Starting point is 00:20:39 It could not. It's really up to whoever issued the NFT. And it's also up to that to people respecting those rights. For example, here's another interesting example. We've had folks tokenized physical assets. They took bottles of wine and they turned them into NFTs. And so they said, okay, this NFT represents this bottle of wine. You can kind of cash it in and get the physical asset if you want.

Starting point is 00:21:06 And then these things can be traded around and used in the defy ecosystem. So there's all these really exciting things that you can do once you turn them into an NFT. You're still relying on that party to respect that, you're still relying on that party to respect that, you can go and get the physical bottle one. Like if they go out of business or run away, then that's not going to work. Or drink the wine.

Starting point is 00:21:25 Yeah. And similarly in games, right, you're sort of respecting that the CryptoKitties game is going to stick around. Now, where it gets interesting is you can create NFTs that sort of don't have reliance on any single party, right? So this is what a lot of folks are starting to do in the art space. they're creating an NFT, and then they're representing the metadata for that NFT. So the metadata is the image, the name, description, all the attributes of that NFT. They're putting that on a decentralized file storage system.

Starting point is 00:22:04 And so there, it's sort of just as unstoppable as the NFT ownership itself. It's basically there permanently on this decentralized system. And so it doesn't really rely on a game website to be available or, you know, in the case of the wine for the company selling the wine to exist. It's just out there, right? And that's pretty interesting because those types of NFTs, you can imagine them persisting for centuries or decades. And so that's kind of an interesting thing that's happening as well. Yeah. One thing that I found interesting was the Bloomberg columnist Matt Levine called NFTs, Tradable Austin. and I've heard other people talk about it as like bragging rights. What do you think of, what do you think of those characterizations? I think it's, I think that is certainly applicable

Starting point is 00:22:57 to some types of NFTs. I think the best example is, um, Cryptopunks. So Cryptopunks was started actually before Cryptokitties. It was really the most, well, I guess people would debate me. There was also rare pepets and things like that. But one of the most OG crypto projects. For those of you who aren't familiar with it, there are basically these 10,000 crypto punks. They're pretty simple kind of art pieces. They each have, you know, different characteristics.

Starting point is 00:23:30 There's sort of alien punks and zombie punks and different hats and things like that. And back in 2017, they were given away for free. So you could just go and you could go on the Cryptopunks website and you could submit a blockchain transaction and claim one. For a long time, there was a very small group of people who were enthusiastic about crypto punks. And every now and again, one would trade for $100, maybe $1,000, not a lot of activity outside of sort of the core NFT enthusiast.

Starting point is 00:24:00 But what's happened is that owning a crypto punk has really become symbolic in some ways of either you spend a lot of money on that crypto punk or you were very early in the space. So a lot of people have them as their Twitter handles. There's sort of this cryptocultural significance to owning your cryptopunk. To the point where now, if you look at crypto punks, one was sold not too long ago for $8 million. So they've sort of become, and frequently their value to the million dollar range. I think the cheapest one is $10 or $20 grand. And so they've sort of become this candidate for a real digital antique that has gone

Starting point is 00:24:42 far beyond, I think if you ask the folks who created CryptoFunks, they had no idea that this would be happening three years later. And they've, you know, sort of taken on a life of their own in the culture of crypto and even, you know, more broadly than crypto in the general tech scene. So it's been really interesting to see that project evolve. And so I think to your original question, I do think in these certain circumstances, you know, I don't think that that sort of dynamic is going apply to all NFTs. Some NFTs are just useful. In some circumstances, they really have taken on this very cultural significance that's similar to owning a physical piece of art. All right. This is so much great information by NFTs, and yet we have not discussed OpenC. So in a moment,

Starting point is 00:25:27 we will do that, but first a quick word from the sponsors who make this show possible. Today's episode is sponsored by EY Blockchain. Ernst & Young is committed to supporting integration of the world's business ecosystems on the public Ethereum blockchain. Join our fifth annual blockchain summit and education series on May 18th to 21st for a deep dive into zero-knowledge privacy technologies, accounting, and tax rules, as well as the future of finance. Sign up and learn more at eY.com slash global blockchain summit or blockchain.e.y.com. Khyber's dynamic market maker, DMM, is a lot of.

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Starting point is 00:27:42 All right. So what is OpenC? So OpenC is a marketplace for NFTs. So one way to think about it is an eBay for NFTs, where you can go and you can buy and sell pretty much any NFT that's on Ethereum, and we're actually expanding to other blockchains as well. And so we allow for a variety of, sale mechanism. So you can go and you can auction your

Starting point is 00:28:10 NFT off to the highest bidder. You can do what's called a Dutch auction where you start at a specific price and it declines. Or you can just do a fixed price listing. We have bidding. We have all of these different sale mechanisms for NFTs. And then the last thing I would say is that OpenC has become sort of a source of truth for NFTs. We've been around for quite a long time. We index all of the NFTs that are out there on the blockchain, meaning that we allow you to explore and search and discover all of them. And so that's sort of another role that OpenC has been playing in the ecosystem.

Starting point is 00:28:44 Since NFTs can be bought and sold on multiple platforms, how do you expect to maintain OpenC's position as the biggest marketplace? What would you say is it's moat? Yeah, I would say we're very focused on improving the customer experience. So we, you know, we're not as, you know, opinionated about having a lot of lock down onto our platform. We're super happy if people go and experience other NFT websites. And we think that at the moment, it's really a rising tide, lifting all boats. But I will say that we are laser focused on making our customers happy. And we do have a long way to go there.

Starting point is 00:29:26 I think there's a lot of UX that needs to be improved about blockchain experiences in general and and OpenC in particular. But we do see ourselves establishing a real brand and trust with our customers, such that they can really reliably come on to OpenC, get the best prices, discover the things that they might want to purchase, and have a really great experience around NFTs. And, you know, frankly, I think users don't necessarily want to constantly be, you know, moving around between tons of different confusing user experiences.

Starting point is 00:29:59 They want something that they can rely on. So we really aim to have OpenC be that reliable source of both NFT data and the ability to trade NFTs as well. And in terms of appealing to creators, how do you compete against the marketplaces that are focused on specific verticals? For instance, if I'm a visual artist, why would I use OpenC over something like Super Rare? Great question. I think the way we see it is there's certainly an exciting role for more curious. marketplaces like Super Rare. But there's also, it's important for people to have the ability to just create an NFT and sell it to people, you know, regardless of whether they've been accepted into a

Starting point is 00:30:43 specific platform or specific more curated set of artists. And so I think we're not trying to be, we don't think of ourselves as competitors to something like Super Rare. We actually think we're quite symbiotic with Super Rare. People can buy NFTs on Super Rare. sell them on OpenC if they so desire. But, you know, we do have an open minting platform that allows anyone to come and create an NFT and sell it. And, you know, I think the benefits of ours are, we have a nice set of features there. So we recently made some optimizations where you can mint without having

Starting point is 00:31:20 to pay the gas up front and sort of offloading it to the first purchase. And then we've added a bunch of really interesting additions to that. So the ability to add unlockable content to an NFT, adding different properties and traits. So we find that a lot of people find that that feature set is really great for getting something off the ground. Yeah. And the unlockable content is just specific content that only the buyer will know or have access to. Did I get that right? Yeah. And so how does OpenC make its money? We currently take a transaction. fee. So on successful sales, we take 2.5%. And for the minting, where the cost of minting is offloaded to the first transaction, is it the buyer paying that or the greater? In that scenario, the buyer pays the

Starting point is 00:32:14 gas cost. That's separate from the fee that OpenC takes. But yeah, the buyer pays the gas cost in that certain sense. But I will note that even if you minted it with a regular system where you actually did pay the gas cost, the buyer would also pay the gas costs to transfer it. So the buyer is kind of paying the gas costs in either circumstance. And so over time, what do you expect to be OpenC's largest source of growth or which of the categories do you expect will be one of the biggest ones for you? Well, I think we've always seen OpenC as a very general platform. So So, you know, my hope is that we don't just become a marketplace specifically for, say, art or a marketplace specifically just for gaming.

Starting point is 00:33:00 I really hope that the use cases and diversity of NFTs continues to expand and that we sort of become this really horizontal marketplace that can support all sorts of different use cases. But I do think that, you know, there are certainly some of those use cases that I think will take off earlier rather than others. and the ones I would definitely point to are number one gaming. So we're seeing a ton of activity there, especially given that we're expanding across multiple blockchains now. And then art, I think, is going to be, our art and sort of creator slash collectibles

Starting point is 00:33:34 is going to continue to be a really exciting use case as well. And is that because those change hands a little bit more often than some of the other categories? Or I would have thought that maybe a bigger category for you would be one where the items do change hands more frequently because then you would get a cut of each of those sales. I think in gaming, what we've witnessed is that depending on the game, the lower value assets do change hands relatively frequently.

Starting point is 00:34:05 The higher value assets, not as much, obviously. And that's a good point about art is that, you know, if you look at super rare, for example, most of their sales are primary sales, not secondary sales. But there are these really, you know, occasionally very large secondary sales. So it's a little bit of a different dynamic. But in the gaming space, you know,

Starting point is 00:34:24 our sense is that you can recreate, once you have lower transaction costs, you can really create a robust economy where, you know, you can have millions of people participating at 50 cents to buy their first item from the secondary market. But then you can also have the prosumer cohort that's more interested in purchasing things at a higher value.

Starting point is 00:34:44 And maybe those, the velocity and the frequency with which those things change hands is a little bit lower. I guess I just realized that either way, even if something doesn't change hands frequently, if it's higher value, then if your fee is based on a percentage, you'll still get a hefty fee for those.

Starting point is 00:35:01 So then it's like less about the frequency. Do you have stats on how much money people tend to be making with OpenC? And I'm sure it probably differs across category, but I'm interested to know those numbers. Yeah, it's hard to say exactly how much money people, I don't have aggregate

Starting point is 00:35:21 statistics that I could, that I'd be able to rely on. That being said, in terms of just general stats, so last month we did around $148 million in gross merchandise volume. That was up from about 98

Starting point is 00:35:37 million in February and then just 8 million in January. So as you can see, there's been really crazy growth of the space over the last little while. And then, you know, I think for if you take sort of an example set of digital artists I was actually just talking to

Starting point is 00:35:52 a class from the Fashion Institute of Technology here in New York over Zoom and someone apparently had gone and just gotten really, really deep in the NFT space last year and made 25 grand

Starting point is 00:36:08 from just selling their digital art and use that to pay student loans which is really awesome to see. So there's stories like that. There's stories like that. There's you know, now these sort of up-and-coming digital artists who occasionally are leaving their day jobs and, you know, deciding to devote their full-time to this, which wouldn't necessarily advise to do unless you know that you're going to be successful at it. But, you know, it is becoming this really, really interesting opportunity where artists can directly monetize their work and people who want to support those artists can, you know, contribute really easily. So whether that's for sort of, viewed from an investment angle or more of just a support angle, I think it's just a completely different dynamic than, you know, again, what you would see on existing digital platforms.

Starting point is 00:37:01 And I heard you say on a different podcast that you've been getting a lot of inbound, but that conversation with the FIT class makes it sound like, are you also trying to do things to draw in non-crypto creators to this space? Yeah, well, most of our recent launches with bigger creators, influencers, athletes, musicians have been from people reaching out to us being interested. I think all of the NFT platforms are just seeing this really giant wave of excitement and curiosity and in some cases confusion around what NFTs are. So we're certainly seeing that. We've probably done a lot less outbound outreach than some of the more art targeted platforms, just. because we're more focused on building our sort of horizontal platform than going specifically

Starting point is 00:37:52 and trying to target artists. But it's certainly a lot of fun to have those sorts of conversations with younger people who are learning about it. And it's always great to get kind of feedback on what are the questions that people have and where do the sources of confusion. And you recently launched OpenC Drops, which are these collaborations with some bigger name creators. Do you have any numbers that you can share and how successful those have been? We launched a few pretty exciting drops recently. So one was with Rob Grunkowski.

Starting point is 00:38:26 I believe he did $1.5 million in trading card sales and I think total of $3 or $4 million secondary sales as well. We did launch with an artist named Kevin Abosh, who I believe sold $5 million recently. And then we've done a whole set of folks from Sean Mendez on music side to athletes. So lots of early experiments and a lot of excitement around it. Recently, we also did the S&L auction. So the S&L team actually auctioned off their video of NFTs as an NFT.

Starting point is 00:39:05 So that was a lot of fun. So yeah, we've been doing all sorts of stuff. Yeah, that was a great video. I did mention it on the podcast. hopefully people watch that. So as you mentioned, OpenC plans on integrating these some layer two solutions plus other blockchains. The two layer two solutions I know about are Polygon and Immutable X.

Starting point is 00:39:26 And then some of the blockchains are Flow and Tasos. How do you decide which other blockchains or which layer two is to support? In general, for any application developer, there are these pretty interesting tradeoffs, right? So if you look at, I'm not saying that one solution is better than the other, it's just that they come with different pros and cons. On one side, you have layer two blockchains or EVM compatible blockchains that look a lot like Ethereum. And the nice thing about those is that you can use all of the existing Ethereum infrastructure, right? So it's a lot easier for application developers to support, which means that there could be more assets deployed on them.

Starting point is 00:40:08 And then for users, they don't necessarily have to learn a new wallet. They can use MetaMask, which in my opinion has some really great tooling and pretty easily connect to one of these other blockchains. So that's on one side. Those are kind of the benefits of being more compatible. And so are you saying that that would apply to Tezos and Flow? That's one side. And then Tezos and Flow are sort of on the other side where flow is not EBM compatible.

Starting point is 00:40:36 So you bring your own, they have their own wallet, and they've done an amazing job of sort of abstracting away some of the blockchain components of the application to make it really easy for someone who's not familiar with crypto to buy their first item. And then Tasea similarly, right, you have their own wallet ecosystem around it as well. So there's pros and cons, right? With that approach, they can fix a lot of the broken things about Ethereum, right? There's a lot of things I think Ethereum probably would have done differently if they could start. start over, some highly technical things that just make the Ethereum blockchain kind of interesting to work with, particularly around programming languages, how the accounts work, those types of things. So that's a nice thing about starting fresh, but of course the con is that you're not

Starting point is 00:41:22 sort of immediately interoperable with the existing infrastructure. So we sort of balance those two approaches. We've built our systems in such a way that we can support everything eventually, But of course, there's going to be more of a heavier lift around the things that are less compatible with Ethereum. And we sort of evaluate things based on how much activity and how much demand is there from users at the end of the day. Oh, okay. So for Flow and Tesos, what tipped it over to you guys adopting that? Was it demand? Just like, you know, there are so many blockchains that are competing with Ethereum. So, you know, I guess flow makes sense simply because of NBA Topshot and because it's pretty focused. focused on the NFT space. Tezos has a number of other competitors. And I should mention,

Starting point is 00:42:10 Tezos is definitely a previous sponsor of my show and may even be a current sponsor. Anyway, so how did you pick amongst the constellation of blockchains that are vying for that space? To be clear, we haven't launched either of those yet, right? So we're still in the development phases. And we're not at all opposed to integrating other blockchains as well. We take a very blockchain agnostic approach. What we liked about flow is obviously, you know, they've been great partners with us from the beginning. They launched cheese wizards and they relied heavily on OpenC as a secondary marketplace for that game. That was sort of their second game. We just have a very good relationship with them where I'm frankly really excited about some of the decisions that

Starting point is 00:42:58 they made on the technical side around how they architected flow. I think they really put a lot of thought into security, a lot of thought into how applications are developed on flow, those types of things. TASO similarly, we had a great relationship with them for a long time, and we're excited about some of the early art projects that are coming to fruition on Tazos. Our belief is that we're going to live in a very multi-chain world

Starting point is 00:43:24 over the next coming years, and it's not just going to be a single chain that dominates everything. It'll be a bit messy, I think, for a while with a lot of competition on kind of the layer one and layer two space. Probably some consolidation eventually. But I think application developers, in my opinion, need to be prepared for a world where there are a lot of different blockchains. And there's probably going to be some user confusion about that as well. And for the layer two's, does using layer two's fragment NFT, liquidity? It's a good question. I would say it depends. What we're seeing mostly with layer

Starting point is 00:44:02 twos today is that NFTs will launch on layer twos and then be tradable in the layer two environment. And then if folks want to bring them to layer one, they can, but they don't necessarily have to. So actually, I think layer twos, because they're lower gas costs and higher throughput, actually improve liquidity for particularly for decentralized marketplaces. while maintaining interoperability with the main chain. So I actually think they're going to really help marketplaces get to the next level. Actually, I think that's a really interesting point. And you're right that especially for gaming as we discussed,

Starting point is 00:44:41 because as you mentioned, you're going to be launching with immutable X. And so we would probably see gaming take off more with a chain that can handle high throughput for NFTs. And so for OpenC, you know, a lot of creators are excited about being able to create an NFT where the secondary sales will give royalties back. And so when artists collaborate, how easy is it for them to have the revenue split directly in the smart contract for all future sales? Yeah, great question. So it is something that's evolving over time.

Starting point is 00:45:24 There are a variety of approaches. So there's sort of one approach, which is try to be very heavy-handed and bake the royalty into the NFT itself and say, you know, you can't transfer this NFT unless you pay this sale fee. That approach for the most part, I think people have moved away from.

Starting point is 00:45:45 The new approach is to say, okay, the NFC can kind of broadcast what should be the secondary sale fee. And marketplaces can respect that. And if the marketplace doesn't respect that, well, then maybe you don't really want to use a marketplace that doesn't respect the secondary sale fees, right? So there's a new standard sort of evolving around that idea.

Starting point is 00:46:04 Because one thing to keep in mind is unless you're extremely heavy-handed, it is difficult to enforce secondary sale fees at an extreme level. So for example, let's say that I wanted to sell you my piece of crypto art and I didn't want to give the artist their cut. Well, I could just sell you it for a dollar or like a very low amount, give that very small cut. And then you could send me money on Venmo or something. So there's always sort of workarounds for getting around those types of fees. And so in my opinion, I think, you know, it'll sort of be a collaboration where marketplace Decide, you know, we're going to respect these fees. If you use our marketplace, we'll respect them. But, you know, it's not so heavy-handed that you're, that you can't, you know, transfer it freely as well. Because I do think that it's important that people can transfer NFTs to whoever they want without, without some sort of weird restrictions on having to pay a certain amount just for a transfer. So I think it's an evolving thing that will require some sort of coordination between the different parties involved.

Starting point is 00:47:16 That's interesting. Yeah, because I, you know, I think the reason that creators are excited about the space is because of the royalty aspect. So, you know, kind of speaking of ways in which this space can be maybe not so positive for creators, there are a number of NFTs, obviously, that are being minted by the people who don't have the right to mint those NFTs. And I was curious on the OpenC platform, what percentage of the NFTs minted there fall in that category? Unfortunately, I'm not sure what percentage it is, but I can tell you how we and other folks deal with those sorts of circumstances. And it is an increasing percentage, or not an increasing percentage, but an increasing number. So as the number of NFTs grows and more and more people start minting, there's, of course, there's a number of things that happen. One, there's more opportunity for fraud. So, for example, someone could, since you can create an NFT, you know, they could create a,

Starting point is 00:48:16 NFT that looks identical to a cryptocity and try to sell it to someone. So that's something that happens every now and then on our platform. And then, of course, there's this issue of taking content from existing sources that they don't own and uploading those as NFTs. In both of those scenarios, the way that we think about it is, yes, you have created an NFT. And in some ways, it is a legitimate NFT, but OpenC does not care to display that on our site. So we're not going to display a fraudulent crypto kitty because it would confuse our buyers,

Starting point is 00:48:51 right? And similarly, we're not going to display copyrighted content because that's, you know, against the law. What's very interesting is that you could, in theory, create sort of a Silk Road type experience around NFTs where you can sell these like knockoff NFTs. Now, I don't know how much demand there would be for something like that. But the interesting thing about it is that OpenC is not the only platform out there. So we're not the gatekeepers. We're not like Twitter where we can kind of completely shut down people's accounts, but we do have policies in place around what types of things we allow people to surface on our platform.

Starting point is 00:49:29 And so how is it typically that creators usually figure out that their work has been minted into an NFT without their consent? So we have a flagging system on OpenC where if you notice something that, you know, is, is suspect or if you're the artist who created it, you can flag it. And then we have folks who look through those reports and delist that content. And then so if there has been somebody who already purchased that, then what happens at that point? Yeah, and those sorts of circumstances. So we do, we have a relatively sophisticated system around this. Anything that has been created on OpenC that has not been explicitly verified by OpenC has a warning attached to it, right? So if, for example, CryptoKitties, we know the CryptoKitties contract.

Starting point is 00:50:23 We know if something is a CryptoKitties. We even have a little blue checkmark next to it that says, this is indeed a CryptoKitty. And so we don't show that warning. But for anything that, you know, is just uploaded by someone and linked to, then we do show that warning. And the onus is on the buyer in that circumstance. So it's sort of do your own research when it comes to unverified items, frankly because we don't have the bandwidth to look through all of the content that comes to OpenC.

Starting point is 00:50:50 But we also ensure that unverified content is not going to show up in places where users might make the mistake and think it's something that has been verified. So our feed is a lot more tailored to the top content on OpenC as opposed to just anything that has been listed. So if I buy an NFT and then later on it's flagged as something that was a copyrighted material that the creator did not have the right to mint, then I don't get refunded my money or anything like that. It's just, you know, I didn't do my research. Unless the creator decides to refund you your money, then that's correct, yeah. And then what happens to that token?

Starting point is 00:51:37 And it's just that it cannot be listed on OpenC? That's right. Yeah, the token, so if it's copyrighted content, the token will sort of appear as a black square on your profile that says, you know, unfortunately this item was be listed. But, you know, if there is another marketplace out there that doesn't, you know, have an objection to that content or, you know, does want to support that NFT,

Starting point is 00:52:04 it's still in your wallet technically. And is there any kind of Goldilocks version of OpenC doing some vetting in a form that's decentralized? Because I feel like the current system, it's probably more negative for creators the way it's currently done because it means that whoever wants to steal their work and mint it is, you know, can basically just do that. And then, you know, they don't really suffer major consequences. So is there any kind of decentralized version of this where an Ovency has some kind of token?

Starting point is 00:52:43 And then there's a decentralized network of people who do some vetting about what gets minted on the platform rather than catching people after the fact. Yeah, well, not aware of any decentralized version. I mean, there have been, I guess there's two angles. One is sort of the token curated registry idea, which has been around for a long time, which is basically like. like a group of people that would vet content before it gets minted. So that's certainly an interesting idea. I don't know how, yeah, it's possible that something like that could scale. In fact, maybe it's an interesting startup idea.

Starting point is 00:53:20 Now, what I will say is that that doesn't prevent people from just, you know, deploying a smart contract and minting to that smart contract and having it show up on OpenC in some capacity. And I will say, I'll also say that, you know, it's not just after the, after it's been bought that we have this flagging system, right? If you identify something before it's even on sale, you know, we can take it down. And then additionally, we'll be putting better measures in place to auto detect this stuff through basic machine learning and sort of image comparison, those types of things. So I don't think, I think there's a lot of sort of low-hanging fruit improvements we can make before. necessitating sort of something more extreme, but I'm in full support of, you know, a more

Starting point is 00:54:09 creative solution where it's like incentivization and stuff. I think sometimes those types of things are compelling. Other times they're hard to actually pull off in practice. Recently, there was a story that Matthew Hickey of Hacker House introduced what he called the Zero Day Collection, which included an asset that he described as, quote, highly collectible hacker artwork. And it was basically a cybersecurity exploit that he minted as an NFT. And the day after OpenC took it down, what factors went into making that decision? I don't know the exact, I wasn't as involved in the exact decision around that one. But, you know, our sense was that it was, you know, in violation of kind of terms of service in the sense that like, you know, it was sort of selling something

Starting point is 00:54:58 that we didn't feel like comfortable supporting, right? Yeah, I don't know the exact reasons, but it was a little outside of the territory of things that we felt comfortable with. And earlier we were talking about fractionalized NFTs, and there has been some suggestion that those could be considered securities. Do you have an opinion on that or any insight?

Starting point is 00:55:23 Well, yeah, we don't trade fractionalized NFTs on our platform. I am not an expert on that. I'm not convinced that in circumstances where it's a fractional version of a pure collectible, that it would necessarily be a security. But, you know, we tend to stay out of the, like, you know, currency, fungible world and more oriented towards these sort of unique one-of-a-kind assets. So let's now talk again kind of about where NFRAs. are going, as we've discussed, there's, it's very, like, it's a space where creators really

Starting point is 00:56:05 can play. And yet, in order to kind of build this world where NFTs are a huge thing, there are a lot of standards that still need to be set. So what do you see as some of the issues that need to still be decided upon when it comes to NFTs? I think one area of opportunity, in my opinion, is around the metadata for NFTs. So today, you know, it's, it's pretty basic, right? You can have an image, a name, a description of your NFT, but you can't necessarily broadcast to the world that this NFT is, for example, an event ticket, right? If you could broadcast that to the world, it wouldn't be that hard to do. It's just creating some sort of standard around it. Then, you know, OpenC could kind of pick it up in a

Starting point is 00:56:55 different way and, you know, support it more natively on our platform such that, you know, maybe the sorting and the filtering and searching is different. Or if you broadcast it to the world that this is a game item, you know, maybe games could sort of pick that up and incorporate them in their game more interestingly, right? So there's sort of this open question around, you know, you have a crypto kitty. And let's say you wanted to create a game where you're like, you know, battling those cryptocities inside of Decentraland, how can you broadcast what that cryptocity should look like in a different context, right? Is it through like a more advanced sort of set of 3D models?

Starting point is 00:57:36 I think there's just a lot of opportunity for richer metadata to have that kind of metaverse type ecosystem where things can really move between different types of experiences. So I think that's an opportunity. And yeah, the other one we touched. on was the royalty standard. I think we talked a little bit about that. But for the royalty one, it didn't seem like you thought there should be a standard way to handle that or do you. What's your opinion on that? Oh, I think there should be a standard. I just think that it should be more

Starting point is 00:58:07 of a standard that broadcasts what the royalty should be. And then marketplaces can opt into the fee as opposed to trying to bake it into the NFT smart contract itself, if that makes sense. So I think that primarily for technical reasons, because if you bake it into the NFT themselves, then you restrict the transferability of the NFT. Wait, why is that? Well, let's say that you said that, like, whenever this NFT is transferred, you have to pay, or let's say that you somehow sort of enforced there's a 5% fee every time it gets sold, right? What happens if I just want to gift you an NFT?

Starting point is 00:58:50 there's not going to be a fee on that. And I could gift you an NFT and you could pay me $500 through Venmo, right? So it's hard to get around those sorts of scenarios. Okay. It's so funny because in other conversations that I've had, yeah, I think the creators, but even someone like Mark Cuban is very excited about that. And then it just seems like you're just saying people aren't going to pay it. They're just going to figure out other ways to handle this.

Starting point is 00:59:19 No, no, I told, sorry, yeah, I think I'm giving off the wrong impression. I think that, and it's really a technical issue. I actually, at a high level, I think there should be a standard for royalties. And I think in the majority of scenarios, they will, marketplaces will respect those standards and pay royalties to the creators. So I think I was diving a little bit too, too much into the weeds on the technical side. That's, that's sort of my high level view. I just think that the one thing I would say is that there are a few devil in the details around how you actually enforce that. But I think that for the most part, it will be enforced through social consensus of marketplaces.

Starting point is 01:00:00 And I think it's a great opportunity for creators. I think creators will be able to sell their work and monetize the secondary sales. I think that is one of the big unlocks. And it's happening today on OpenC, for example, and it's happening on other platforms. and it'll continue to happen. There are some coordination challenges around having every marketplace sort of use the same fee system. But I think it's solvable.

Starting point is 01:00:30 Now that NFTs are more in the public eye, there's been pushback on environmental issues. Does OpenC Plano address that in any way to appeal to the mainstream world? The biggest thing we're doing today is we're moving over from proof of work, blockchains to proof of stake blockchains. And we're actually first movers in this category, I think will be one of the first applications to really have a significant multi-chain push away from Ethereum and not entirely away from Ethereum, but onto these more scalable versions of Ethereum that aren't proof of work based. And I would say that it's interesting. That's number one, it's a challenge for the whole blockchain space.

Starting point is 01:01:11 It's not just NFTs. Number two, it's already happening, not just. for environmental reasons, but for pure scalability reasons. So I think it's this inevitable shift that is, you know, already starting to happen and going to kind of increase in velocity over the coming years. Yeah, I think it's just more noticeable with the NFTs because it's drawn in this non-crypto crowd. Yeah.

Starting point is 01:01:37 So you're right that it's an issue across the space, but the NFTs for whatever reason have been the catalyst for a lot of criticism. in that regard. So I recognize you may not be able to reveal who is working on creating NFTs with OpenC, but what would you say is next for OpenC and maybe you can give some hints about what's coming down the pike? Sure. Well, one thing we're really excited about is launching our first foray into a multi-tune ecosystem, as I mentioned. So we have some alpha experiences there and are going to be launching things relatively soon as a full experience. on the core platform.

Starting point is 01:02:18 So we're super excited about that. We do have a few launches in the pipeline of different content, but we do like to keep that a surprise for our users, working with more and more athletes, musicians, these types of folks on launching exciting NFTs. I think we'll always just be focused on really improving the core platform. So trying to listen to what our users are saying, make it a much more friendly experience for people who are new to the space.

Starting point is 01:02:50 I think OpenC is a little bit intimidating for the casual user at the moment. So we're making a lot of steps into better onboarding and making NFC's friendlier to people who don't understand the technology yet. So, you know, those are some of the things that we have in the pipeline. Great. And where can people learn more about you in OpenC? You can follow OpenC on Twitter, the handles OpenC at OpenC, and then my Twitter is Defender, D-F-I-N-Z-E-R.

Starting point is 01:03:21 Great. Well, thank you so much for coming on Unchained. Thanks for having me. Thanks so much for joining us today. To learn more about Devin and OpenC, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Ness, and Mark Murdoch. Thanks for listening.

Unchained - How NFT Platform OpenSea Plans to Maintain Its Competitive Advantage - Ep.232

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