Unchained - The Chopping Block: The Inside Story of How Blur Toppled NFT Giant OpenSea - Ep. 459

Episode Date: February 22, 2023

Welcome to “The Chopping Block” – where crypto insiders Haseeb Qureshi, Robert Leshner, Tom Schmidt, and Tarun Chitra chop it up about the latest news. This week, it’s time for a case study: Special guest Pacman, founder of Blur, explains how his upstart NFT marketplace fought OpenSea and won. Show highlights:  what it’s like to launch a token why Blur was created and what its strategy was for competing with OpenSea why royalties remain a lightning rod in the NFT community how Blur designed its liquidity mining program and the lesson learned from failed designs the reasons why Blur succeeded in the NFT marketplace environment Pacman’s reaction to OpenSea’s decision to not enforce royalties why forking the Blur code won’t work for new marketplace competitors why the NFT market remained strong in the depths of a bear market why Pacman thinks AMMs for NFTs won’t work whether the “death of royalties” is good or bad for the ecosystem Hosts Haseeb Qureshi, managing partner at Dragonfly  Tarun Chitra, managing partner at Robot Ventures Robert Leshner, founder of Compound  Tom Schmidt, general partner at Dragonfly  Guest Pacman, founder of Blur Twitter Disclosures Previous coverage on NFT royalties: The Chopping Block: Two on Two Debate: NFT Royalty Throwdown! Are NFT Royalties the Way? How to Build a Sustainable Creator Economy Links Dune: Blur VS OpenSea Blog post: How to earn royalties on Blur OpenSea’s response Unchained:  OpenSea Eliminates Marketplace Fee, Makes Creator Royalties Optional Blur Airdrops 360M Tokens to NFT Traders Learn more about your ad choices. Visit megaphone.fm/adchoices

Not a dividend. It's a tale of two Kwan. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. Unnamed trading firms who are very involved. D5.Eat is the ultimate pump. D5 Protocol is part of the antidote to this problem. Hello everyone. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective

on the crypto topics of the day. Quick intros. First out, we got Tom, the D5 Maven and Master of Memes. Next out, we've got Robert, the Cryptoanauceur, and Captain of Compto compound. Next, we've got Tarun, the Gigabrain, and Grand Puba at Gauntlet. And joining us today, special guests, we've got Pac-Man, the Baron of Blur. And then finally, you've got myself, I've received the Head Hype Man at Dragonfly. So the four of us are early-stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see Chopin Block. That, XYZ for more information. So Pac-Man, great to have you

on the show. I see you're here in flesh and bone. I assume that's what you really look like. The real human Pac-Man, yeah. The real human Pac-Man. You know, usually I see that you don't present as yourself, but I'm glad for this show you've unveiled your true colors. Great to have you joining us, man. Thank you, sir. Thanks for having me.

It's got to have been a crazy week for you. So quick, by way of background, Pac-Man is one of the founders of Blur. He is operating pseudonymously. I want to caveat before we get into the show that Dragonfly, we are investors in the Blur token, so we're, you know, full, full, full, full, full full disclosures. But this, it's basically within the last week that the blur air drop has gone live and the token has started trading. And you guys are now by far the biggest publicly tradable NFT token. How does it feel? It must be absolutely crazy for you. Yeah, it's been

absolutely incredible, definitely very satisfied with the results so far. Fair enough. Satisfied is a good answer? Wow, that sounds like an earnings call type of phrase. Robert, you're the only other person here who's had a token launch, besides Tom and his meme token. You're the only other one who's had like a real legit token launch. I don't know because I've never had that experience, and I hope never to, because it sounds horrifying. Wait, there's no Dragonfly token? When's the Dragonfly AirDrop? You guys are definitely eligible when it's live, but so far we're we don't reveal too much about the criteria for mining it. But what does it feel like?

Tell me what it's like to launch a token. What does it feel like? Yeah. Honestly, it's mainly exhaustion. You know, in the 48 hours leading up to the token launch, I literally did not sleep. So it was like 5 a.m. And we were slated for a 9 a.m. PT, you know, 12 p.m. ET token launch. And there was just still some like final to-dos to finish up.

So I was like, okay, I'm going to try to like sleep for 30 minutes, close my eyes for 30 minutes, could not sleep, woke up, had a coffee, you know, went through the token launch. We delayed 90 minutes, of course, and then launched. And it was just like absolutely insane. Everything held up, which was phenomenal. And then I had a few interviews later in the day. And still was not able to sleep until probably around like 3, 4 a.m. that evening. So first time in my life that I stayed up for 48 hours straight, which was quite interesting.

Wow, that's intense. Robert, what was the day that you launched CompToken like? It was a very different time. You know, I don't even remember at this point. It was so many years ago. You know, I just remember, you know, the excitement of wondering what would happen next, right? And wondering, you know, how would it get used and wondering, you know, when would it get used and wondering, you know, was there a bug? You know, at that point, you know, most of the code was tested but new.

And at this point, you know, governance tokens and governance systems are, you know, run of the mill. But really, it was just a sense of just like wondering, you know, what would happen next because it was, you know, in 2020, it was, you know, a very different era. And there was a lot less tokens being launched. And so, you know, I feel like, you know, for anyone that's gone through the process, it's, you know, it's mostly just like, you know, curious, you know, observation. And does it feel like it's different to launch token today than it was back then, or is it basically the same like adrenaline rush as it must have been in 2020? Well, in 2020, it was scary, right? Because like there is so many fewer of them. You know, now I feel like, you know, there's a playbook. You know, and granted, you know, everyone innovates on the playbook. And bluer is not doing it the exact same ways everyone else does. You know, but then it was anxiety, you know, inducing. I can imagine. Okay, well, so speaking of the playbook,

so I wanted to kind of structure this episode as a bit of a case study because Blur has been one of the most incredible kind of developments of a new product in crypto, and there's a lot of really interesting things you guys have done strategically to break into the NFT market,

the market of the marketplaces. So I'm going to do a little bit of setup before we jump into kind of getting your perspective around the strategy of how you've done Blur. But a lot of people I think who are listening probably don't know that much about,

about Blur or even about the history of how Blur came to be. And so the history of that really starts with OpenC. So OpenC, I think everybody in crypto knows OpenC, the largest NFT platform historically. They basically had a monopoly going into essentially mid-2020. They were the dominant platform by far when NFTs really kicked off in late 2020. Last year, they did $21 billion in GMV. They had over $500 million in fees, raised enormous amounts of capital at really crazy evaluations. And OpenC, historically, they always enforced royalties. And royalties are going to be

kind of at the center of a lot of the conversation and the strategy that Blur really innovated on. So for a lot of people, so we had a big debate about royalties on the chopping block. This was like, I don't know, three months ago back when Magic Eden first turned off royalties. And for those of you who didn't catch that, royalties are basically when anytime there's a trade of an NFT, if you enforce royalties, that basically means that you're enforcing a percentage of that trade as a fee to go back to the NFT issuer. So if Uga Labs, they're the issuer of Bored Apes, if you trade a board ape, then if this marketplace is enforcing royalties, they will take X percent of that trade and they'll send it

back to Yuga Labs as a sort of fee for any time their collections traded. And historically, these were always enforced. Now, royalties, though, are not enforceable at the protocol layer. There is no way to enforce royalties directly in the code. And this is kind of the weird thing about royalties that a lot of people don't understand. Royalties are actually more of a norm than they are something embedded into the software. So now this norm has always been enforced, basically, in part because OpenC just dominated the market. And everybody kind of understood that, like, well, you know, this is part of the ethos of NFTs is that you do these royalty things and it's all good.

but then came pseudoswop. Sudo swap was the first the really dominant NFT marketplace that did not enforce royalties. It was an AMM and the AMMs just, you know, they just decided not to do royalties. And they started gaining a lot of market share that pushed Magic Eden to start not enforcing royalties

and that triggered the conversation that we had about this big NFT royalty debate. And then OpenC finally felt the pressure to do something. But what they did was very interesting. What they did was that they allowed you to continue enforcing royalties on OpenC only if you blocked competitors that did not enforce royalties.

So Pac-Man, talk us through what that was like. When you guys saw OpenC going through this move, what did you think? How did you understand what they were doing strategically? Because Blur was already live at that point. Yeah, it was quite interesting. You know, you're totally right that it kicked off with pseudo. And it's somewhat of a, basically a prisoner's is almost,

when it comes to royalty enforcement across marketplaces. And pseudo was kind of the first defector, you know, in the space. And what happened from there was within a month of pseudo's launch, Gem, which is actually owned by OpenC, integrated pseudo into its aggregator. And Gem at the time was the leading marketplace aggregator, NFT aggregator, basically it lets you, you know, buy listings across marketplaces. You know, Blur is now the largest aggregator and marketplace by far. But at the time, Gem was the largest.

and they integrate a pseudo. And it was quite a surprising move because from our perspective, it seemed to be antithetical to OpenC's entire position. It seemed like it would cannibalize their own business. Why would you actively support a protocol that is circumventing a fee that you're adding into your own marketplace? And it was very clear to us that it would kickstart this domino effect that would be something that the entire space in general didn't want.

So what happened after was after Gem integrated a pseudo within three days, X2Y2, which was another leading marketplace at the time prior to Blur's launch, they went to optional royalties immediately. And they cited gems move as the reason for why. And then now both of those marketplaces were gaining share due to a lower fee structure. And we launched. And basically our goal was to pull traders away from those zero royalty marketplaces by giving them a carrot.

And the carrot was, we're going to give a larger air drop to traders who honors some royalties, at least, compared to honor and no royalties. And then, you know, within a few weeks, there were a few hot collections that launched that Blur ended up winning a lot of volume on. And then OpenC came out with this approach. And it was somewhat surprising to us because there are two reasons why it was surprising. One was it fundamentally altered the culture of the space where it suddenly became okay for collection creators to put in, you know, white lists or blacklists into the native asset, the NFT itself, basically introduced centralization into the underlying asset. And that was just to us, such a slippery slope that was basically against the entire ethos of this space. You know,

if you're going to introduce centralization in that way, why not just trade a JPEG on a server and, you know, you can pay with ETH and, you know, like it gets you the same thing. You can enforce royalties that way. But it kind of just like went against what we felt was really awesome about NFTs, which is this, you know, permissionless asset that can trade anywhere around the world 24-7. Once you own it, you own it. It's yours to do with it what you want. And so they introduced this and they basically made it okay for the collections to, you know, basically start introducing centralization into the underlying asset.

And then not only to do this, but also we know from Defi that you can't really enforce these types of restrictions at a technical level. like if there's always workarounds. You can always create like wrappers. You can do code golf. Like, you know, people have tried to make tokens that can't go below a certain value. And it's like, it never works. So so many of these attempts have been made in defy already.

And, you know, at the end of the day, whether you're restricting an ERC 20 or an ERC 721, they're all just tokens that you're restricting, you know, NFTs at a technical level, you know, there's still assets on Ethereum. So it was clear to us that, okay, this could be an FDN. effective temporary measure, but it's not an effective long-term measure. And at this, you know, while ineffective, they also just kind of permanently changed the culture of the space at the same time. So it just kind of seemed like a double whammy. That was very unfortunate. We at the time actually adopted that policy within a week because we saw that, you know, obviously OpenC at the

time was the leading marketplace. It was very clear that there would be a shift from the creators. Like if you're just thinking about from like an EB perspective, like, you know, a collection creator basically has to adopt open C's like filter policy. And then, you know, if the royalties were going to be enforced in a temporary state, we might as well, you know, play along in the business dilemma and cooperate because, you know, as long as for us, as long as there was something that was being adhered to at a cultural level, we thought it was reasonable for us to continue to enforce royalties on those collections until, you know, until someone defected again effectively. So we adopted it, but it just didn't really make sense to us. So when you adopted it, did OpenC remove you from

that default block list? No, actually it was really funny. They did not because, you know, when we adopted it, we said, we'll adopt it for collections that incorporate this filter, but for collections that don't incorporate this filter and including existing collections, like older collections like Azuki or Bored Apes, you know, these were really decentralized assets, right? That's, you know, one of the reasons why we think that they're still the blue ships is that they're really these decentralized assets. And they didn't have any sort of way to restrict the trading. So they could still trade on pseudo. They could still trade on X, X, Y, too. So when we considered that, it just didn't make sense to enforce the full royalties on those collections because it was obvious that the traders who are very price sensitive, they would go to those alternative venues. But OpenC basically said, because Blur isn't doing that, they're not going to be removed from the filter list. I see. So even though you guys are trying to play nice, they're like, no, screw Blur. Like, we're not going to take them off. I think a lot of people who are listening to this conversation who are not very deep in NFTs might be confused about what we keep talking about royalties.

royalties, royalties. It seems like royalties is like at the heart of this big conflict between all the big marketplaces in NFTs. Maybe just to kind of build the intuition, why are royalties so fraught? Why are they so important? Why are people arguing about them? Because we're not talking about fees, right? Fees are also another element of it, which is that, you know, OpenC has the highest take

rate of any of the NFT exchanges. But the big fight has been over royalties. Why do you think it is that royalties are this giant battleground? Yeah, I think a lot of it is path dependency, to be honest. You know, the way the way the NFT culture started was PFP's like larger collections, they weren't the norm. It was initially like one of one art, you know, like small batch collections. And for like one of one artists, you know, this whole concept of royalties made a lot

of sense because collectors of those collections, they have a very personal relationship with the art. And they have a personal relationship with the artists. And they'll oftentimes want to pay the royalty because they want to. to honor the artists and help sustain them. It's a really beautiful thing. PFP collections, as they got big, it kind of became the norm to still have the royalties. And it kind of became like the default way that a lot of these collections would monetize, not from like a total monetary perspective, but from like a cultural perspective. So, you know, if you look at like Yuga Labs,

for example, like they make most of their money off of the mints and actually a very small proportion of the money that they've made has been off of the royalties. But I think it just kind of became the norm for everyone to expect. When we, when we looked at the market, it seemed rather suboptimal from a value capture perspective for the collection creators, to be honest, because, you know, in any sort of financial market, any increase in take rates results in a nonlinear decrease in trading volume. If you decrease the take rate, you can have significantly more trading volume. You can have tighter spreads, more liquidity. There's a lot of things. And then there's a lot of things that can only happen once you have more liquidity. And

And it felt to us like the space was kind of being held back by this norm that wasn't actually long-term optimal. But it was the norm because that's kind of how the space started effectively. That makes sense. Okay. So there's a lot of cultural path dependence to how royalties played out and how they became such an important battleground both symbolically, financially, and even emotionally for why all these exchanges were fighting with each other over this concept of royalties and trying to enforce them on

chain through blacklisting each other and doing all this other complicated stuff. You could argue that royalties were sort of like liquidity mining for artists and that it attracted artists at a certain time, you know, in 2021 where you're basically arguing that they got this like annuity that would, you know, be there perpetually. And that's why you should put your art in an NFT. And I think like what there's, yeah, there's just some point at which it became an unreasonable subsidy relative to like market friction. Also, by the way, Hustee, we all know this episode is your Victory Lap episode. We'll get to that. We'll get to that. We'll get to that. We get to that.

Go ahead, Tom. No, I totally agree. I think from my conversations with artists and galleries, a lot of them initially viewed, you know, digital art has been around for for a while, but a lot of them viewed the, you know, a traction of NFTs as, you know, A, reaching a bigger market, but also getting access to the secondaries. It was kind of sort of a very, like, semi-famous moment where like, not an artist, but Mark Cuban was talking about tokenizing, you know, cabs tickets and letting them trade on like an NFT exchange. Then someone was like, no, like, you know, you can't enforce the royalties on chain. And it's like, wait, what's the point of the tokenization that if I don't get the second, the secondaries fees?

And so it's like, I think even, you know, somewhat sophisticated people sort of sort of missed this point. Wait, wait, wait, wait, wait, are we, we're calling Mark Cuban, who lost a lot of his money in iron finance, the sophisticated person here, but just just checking. I'm trying to be kind. I'm trying to be kind on the pod today. So the other thing that always struck me as strange about this story about royalties. And again, I'm trying not to take too much of victory left because I did predict that this would happen. But the thing that also struck me as strange is that crypto, you know, in crypto, we find a way to tokenize almost everything, right? Pretty much anything that can be on chain, we find some way to break it down into tokens and trade it. But for some reason,

people never did that to royalties. They never tokenized their royalty stream and then sold it to third parties. There were a few projects I did this here and there, but it wasn't widespread. It wasn't common. But this seems like the obvious way to understand what royalties are, right? Like when an artist ends up working with a music label, what they do is they end up basically selling off vast majority of their royalties to the label, right, in order to basically get an upfront payment to allow them to go create art or whatever, and also take away most of their risk. If NFT artists had done this, what they would find is that actually you can just sell this off for lump sum payment and basically sell it. You know, you could have sold it to the exchange in the first place.

So there's nothing about even the nature of royalties that guarantees that they're structured as an annuity. If you just sold it off up front, which, you know, you could in principle, then I think the norms would have been very different if, in fact, when royalties were created that they were initially tokenized and most people would just sell them alongside the initial NFT mint. Yeah, I think it's very interesting. You know, ultimately, I think especially on on Twitter, what ends up happening is there's no nuance that's allowed in any of these conversations. And there's nuance at multiple levels. There's, there's nuance in the types of NFTs, right? So like, pfp, like large PFPs like Azuki or Uzuki or Yuga, like those are like venture-backed

companies. Like those are startups. And that's a very different beast than like a one of one artist that sells like super rare. And a collector that's buying a bunch of art is, very different than a retail user who is a newcomer is very different than a trader, who is going to be very price sensitive, is different than like a market maker. And you're now, now after our token launch, you know, there are a lot more market makers in the space than there were before, which is something that's quite interesting, which is what, you know, what we were hoping for ultimately. But, you know, basically there are all these different demographics and use cases. And the conversation has only ever been a binary, you know,

will you fully enforce royalties or not fully enforce royalties? And it's like the market has tried to apply a one size fits all solution to a market that is actually very segmented. So it was just like, it was just very surprised. Not surprising. I think I'm not surprised anymore, but it was more so just it was like, okay, this is going to be a short term like noise effectively because this conversation, like the market will do what the market is going to do. This conversation can prevent it for a little bit, but the market is ultimately what's going to win out at the end of the day. And you can't really stop the market forces. So it just seemed kind of like an inevitability.

but it was a conversation that lasted for a lot longer than I think it needed to. And we could have focused on more productive conversations, but it wasn't able to just because of the lack of nuance. 100%. Yeah. All markets tend toward efficiency over time, especially as they become more competitive. But okay, let's continue on with the case study. So, okay, so OpenC, 1000 pound gorilla, they start blacklisting you guys for collections that are,

if they want to enforce full royalties, they have to blacklist blur as well as pseudo and a bunch of other stuff. Okay, now separately, you guys are doing, so there are two things that are happening, I think, on the blur side. So one is that you guys observe the rise of aggregators like Gem and Jeannie. Blur launches as an aggregator initially, but then you also have your own proprietary liquidity, meaning that instead of just being a pass-through

to being able to shop on a bunch of other exchanges, you can list items directly onto Blur and onto Blur's order book. And part of what was so brilliant about Blur and I think a big contributor to you guys was the nature of your liquidity mining program. So if you look at the other two big upstart tokenized NFT exchanges, X2Y2 and looks rare, both of them had token, airdrop, mining, whatever programs, but they were both terribly designed in that most of what they incentivized was wash trading. In fact, we see, if you look at the metrics on chain, enormous amounts of washrating,

Hill Dobby from Dragonfly posted some great analysis showing how much of the volume on these two exchanges can be easily identified to be wash trading. Talk us through what did X2Y2 and Looks Rare do wrong? What did you learn from them about how not to design a liquidity mining program and what you guys did instead? Yeah, that's a great question. So for context, Blur started 400 days ago. So today's Day 400 for us at Blur. And if you zoom out and go back to January of last year, it's really interesting because

as soon as we started working on Blur, Looks Rare launched about like a week or two after and the X2 Y2 launched soon after that. A gem as well launched about at the same time. So all of these players that came into the market, they came into the market right as we started building blur. And so we had to start from a point of building from behind everyone and, you know, shipping faster than the competition to eventually pull ahead. But something that we benefited from,

even though, you know, having a late start was was frustrating, is we got to observe what looks for our next to Y2 did. And what we learned was that, you know, clearly the AirDrop program that Lux Rare did was incredibly successful. Like it got everyone talking about Looks Rare. It got so many users into the funnel. But, you know, if you spend any time in, you know, Web2 eCommerce startups, you know, you'll know that you can, you know, put as much money as you want into like Facebook ads to acquire users. But ultimately, if you don't have the retention, you're basically just burning money. And, you know, that was kind of what we saw with these marketplaces where they did these massive air job campaigns.

It was very good for customer acquisition at the top of the funnel. But the products themselves and the niches that they were serving were not good. And there's two issues with it. One was the marketplaces themselves just like were not really that great. Like they were effectively competing with OpenC, but at the product level, they were worse. And also, if you study Web2 marketplaces, you can see. that it's basically impossible to actually unseat a large marketplace once it has established network effects. Like even Craigslist, you know, they haven't changed their product in like 20 years

and they still do about like a billion in revenue every year. So network effects are really, really strong. The only way that you can actually create a new marketplace or exchange or anything that relies on network effects is you have to target a different segment, you see this in the token world where, you know, even though Coinbase was very dominant, finance came out, they targeted the crypto natives and they created a better product for them and then expanded from there. FTX as well actually pulled off the strategy very effectively. You know, their big issue was stealing everyone's money. But outside of that, like they actually had a really good product. Like most of the people that I know, they actually preferred trading on FTCX, you know, even though

FTCS launched so late in 2019. So the two big issues that we saw were that they launched and with the worst product and they didn't have a product that could retain people. And then they incentivized wash trading. They incentivized volume. Whenever you incentivize volume, basically what you'll have is some MEP guy will do a, you know, O girl or they will do a EV calculation and be like, okay, I can trade this much amount and I'll get this much in, you know, tokens back and then I can sell them. And then there's a profit.

And I'm just going to keep on doing that. And what that means is that you're bringing in wash traders into your market. you're not actually bringing in real users. And so we avoided that by only incentivizing liquidity and never volume. And that resulted in real users coming into the market. So incentivizing liquidity, though, is subtle, right? It's very easy to know how to incentivize trading volume. How do you incentivize liquidity without letting it be gained?

Yeah, it's quite difficult. I think a really good model here is if you look at Curve, Curve has done a great job incentivizing. So on Curve, right, it's like you're only rewarded for providing liquidity. for the stable coin pairs and you don't actually get any rewards for trading the stable coins, right? The only reason you trade is because they have such a great liquidity. And so that's a great setup. It's quite easy for curves to kind of do a calculation there because you have stable coins. They're like fungible assets.

For NFTs, they are non fungible assets. So it's pretty difficult. You know, when we did our air drops, basically we incentivized listings and we didn't publicize any sort of formula for it because it's difficult to design a formula that is like a one-size-fits-all solution. You know, these are non-fundurable assets. So, you know, you could incentivize just floor listings, but then what you get is, you know, people aren't going to list their mids or their rairs, right? There's different tiers of NFTs, and you're just going to get people listing all the items near the floor. And also, like, that's not even necessarily what you want, because now you just get a ton of, you know, massive cell walls

that are very difficult to break through. And that's not necessarily a good outcome. So listing incentives are quite difficult. Bidding incentives are a lot easier, actually. We were able to basically have a single formula for that because, you know, bids are, it's just like liquidity on a trading pair, right? So you can, you can look at the liquidity and because it's fungible, you can come up with some formulas for doing it. And it works pretty similarly to curve where you basically, you know, take the integral of like the bid over time and, and then you have basically like some value function over time that you can assign to each bid based on its position in the order book, you know, without getting too much into the weeds, basically you can come up with a pretty good formula for bidding.

It's quite difficult for listing, but we did our best, and it worked, even though it was kind of opaque. Robert, what are your thoughts? As the granddaddy of liquidity mining, your thoughts as the concept of liquidity mining has gotten more and more complex with trying to do that for NFTs now. Well, the preface, you know, when compound began the distribution of comps, there was no phrase called liquidity mining. It wasn't intended to be liquidity mining. It was sort of an accidental byproduct. You know, I think the science behind all of this has evolved a hundredfold, you know, in the two-ish years, two and a half years since. I mean, like two and a half years ago is like the Stone Age when it comes to creating and scaling protocols. You know, back then it was basically just playing with rocks and sticks. Now it's, you know, I think Blur is bringing science to this in a way that there was no science back in the day, right? I completely agree with the point that you want to, you know, create underlying, like, genuine liquidity or not trying to get, like, wash trading or, like, things that don't contribute value back to the protocol. You know, I think that is one of the intelligent things that, you know, blur is doing where you see issues like this on looks rare and other platforms where it's just, it's junk behavior. It's not like useful behavior.

And so by focusing on the provision of liquidity, like that's what makes the actual marketplace better. And so by focusing on that, I think it's the correct area to focus on. I remember when we were looking at all the NFT marketplaces, like we really wanted to back one of these upstart marketplaces. But every time that we looked at the liquidity mining programs, they were just so obviously wrong. Like centralized exchanges figured this out a while ago.

Like ever since F-coin, people have known that trade mining is broken. It's just wrong. It's the wrong thing to do. And every time you do it, you will get the same result, which is watch trading. You just get tons and tons of wash trading. But designing, like you said, Pac-Man, doing this for NFTs is complicated. It requires a lot of careful thinking and making sure that, again, you're not, like, there are so many different ways to game protocols that are on chain where you don't exactly

know who this person is. You can't exactly tell, you know, is this person on the other side actually, you know, a counterparty making a legitimate trade. And so it's all about Mexican. design and thinking very carefully about, you know, if you were, it's very much about adversarial thinking. If you were airdrop farmer or an adversarial, you know, air drop minor, how would you do it and how can you defeat them as best you can? Yeah, absolutely. It's quite interesting. There's so many different ways that people would try to game it, you know, just on the, on the bid side. You know,

one thing that is very common that we see. And it's, it's funny. I wish the, I wish like the exploiters would just kind of give a little bit more respect to some of the ever put in. Because like one of the obvious things that people do is they'll, they'll of course try to like civil attack. Like they'll split up their bids across different accounts. And the reason why you want to do that is in case the points get like curved at all. Right. So if they get curves on the upper end,

you obviously want to split it into a lot of the different small accounts. Another one is, you know, people will keep their bids up. And then if they see a transaction in the M-Pool, someone trying to sell into it, they'll immediately withdraw their, their eth from the bidding pool. And it's like, you know, this is the most obvious, you know, ploy ever. You just like, you can just like query for that so easily and detect that and, and filter that out and any sort of risk word scheme.

And there are more like advanced way, like, you know, modifications of that scheme, uh, that we're aware of. But, you know, ultimately it's pretty, it's pretty hard to, you know, cheat it on the bidding side because it's like, you know, liquidity, whether you're farming or placing a bid, you know, completely just because you want to like buy an item if someone sells into it like liquidity is liquidity. And as long as your liquidity is staying up there, you're taking risk because someone can always sell into your bid. And so you're, you know, you're providing real value there. And unless you're trying to like game it by making it so your bid like can't be sold or something

that can't be bought into, which is pretty easy to detect, you're ultimately taking real risk when you bid. So it is, it is like a really nice structure where we are able to kind of effectively assign like a real point system and formula to the bidding incentives, and that worked quite well. Okay. So if I had to sort of take a high-level summary of what made Blur successful, like what the playbook was, I think it started with aggregation, kind of learning from Jam and Jeannie, which came before you guys. The second prong was the liquidity mining, which started creating the proprietary order book that allowed you guys to start competing toe-to-to-to-to-with open-see. Then let's go back to the royalty side, because the royalty is really where.

where the drama accelerated, particularly in the last couple weeks, this is the part that I think at some day there will be a Harvard Business School case study on what happened between you guys and OpenC on royalties. So you guys wrote this blog post very recently where you encouraged your creators to start blocking opency instead of blocking blur. Talk us through what happened there. What was the gambit? How did you think of this up?

Yeah. So, you know, ultimately. we've always maintained the position, and we've shared from day one that any sort of on-chain filter system is circumventable. We didn't do anything since November was when OpenZCount first came out with their filter system. We didn't do anything for three months, basically, because we were still thinking through, you know, what position makes sense. We really didn't want to put something out there and then have to change our position. You know, we saw this happen on Solana where Magic Eden, they tweeted, we will never get rid of royalties. And then like

literally four weeks later, they changed their position. And it was just, it was just like not a good look, you know, because it's like, if you just like think through the problem, it's like very obvious that you can't, like unless you can enforce it on chain, there's just no way you can actually maintain that promise. You know, otherwise, you know, Magic Eden would have to go to their shareholders and say, hey, like, we're going to do, like, we're doing this and we're maintaining this and we're going to lose market share and no one's going to trade on us, but like, you know, we're going to maintain this position. Like, they would have to go and do that. And obviously, they're not going to go and do that. And they did it.

And OpenC was basically taking a similar approach. We really didn't want to put out any sort of approach that we'd have to, you know, go back with our on our word on. So whenever, when we came out initially, we said, you know, we'll adopt this filter policy. It was like a week after OpenC came out with their policy. We said, we'll adopt this as long as it's not getting circumvented. And then if it does get circumvented, then we'll, then we'll change our policy to match. And we didn't do anything. We started seeing some new marketplaces come out that were, you know, taking a royalty circumvention approach to growth, which was fairly obvious.

We knew it was going to happen. We knew it was going to happen from, you know, from the moment that the system was introduced. But, you know, we kind of bided our time because we didn't want to take action unless it was needed. We started, we started to see that happen. And then, and then basically we just kind of put into. to action the plan that we had from the beginning, which is you just need to make it so that the only like plus EV move for OpenC is to basically remove blur from the filter list.

And the way we did that was we said, you know, if your collection blocking blur, you know, it's still going to be tradable on blur. It's just going to be tradable without the full royalties with a minimum. But if you block OpenC, it'll be tradable with full world. And then, you know, of course, the only plus EV move there is to start blocking OpenC. And then you started to see that. And then, you know, within, within two days, OpenC had decided to remove blur from the block list.

And then they basically matched our policy. So can you go into some of the gory details? Like how was this move possible? And I think maybe some details about Seaport and all this might be helpful for people to understand how this worked. Yeah. There are multiple ways that you can do it. you know, you can create contracts that basically, you know, the way that the block worked was it,

it was a very primitive block. It basically was, you know, whenever you trade an NFT, you have to approve a contract to spend it, similar to how when you like trade your week on uniswap, you have to, you know, approve uniswap to spend the week. And basically this filter that obviously created would, you know, look at the address that was being approved and basically just fail if it was like. like a blacklisted address. And so, you know, you could obviously just like switch addresses, but then they can like update their filter list. You can do something dynamic where, you know,

pseudo kind of has like a dynamic pool system where each pool has a different address. So that makes it like harder. You know, for us, we, we felt like it would just be easier. Instead of, you know, changing the marketplace protocol, we could just use Seaport itself, which is OpenC's, you know, marketplace protocol that they, that they rely on. And they're not going to block their own market place protocol, of course. So we basically just used their own protocol and then, and then there wasn't really much that they could do about it. So this is like a Trojan horse type attack. It almost seems like the best analogy, which is that once you start piggybacking on their own infrastructure, you became like, you know, they sort of needed to do some kind of chemotherapy

type approach if they wanted to save themselves from being able to still block blur. Is that a fair summary? Yeah, ultimately, that is fair. And, you know, we, like, we don't try to glow of parade things around at all. Ultimately, it's just, you know, this. It's all right. We'll gloat on your behalf because it was pretty amazing to watch. I got to be honest. We were, we were, we were floored when we saw what you guys were doing on chain. Thank you, sir. Thank you, sir. Um, you know, ultimately just the moves that they were making just, it didn't make sense to us. It didn't seem like it was actually furthering the space. It seemed like a very self-protective move. You know, I think they brilliantly framed it as a pro-creator move,

even though it was very, you know, clear to us that it was not, it was not a pro-creator move. And I think that the rest of the space kind of saw that, you know, just a few days ago when they switched things up to many people's surprise. So let's talk about that. So you guys throw down the gauntlet, you say, hey, guess what? If you want to block us, you have to block yourself. And creators should instead join us and block OpenC, if they want to. be receiving full royalties on blur. And within, what was it? Within a few days?

Yeah, it was like 48 hours. Okay. So within 48 hours, OpenC announces for the first time ever after being throughout their entire history, the highest fee and full royalty enforcing exchange through all of the NFT boom, for the first time ever they announce that they are no longer enforcing royalties and they are going to zero fees for a temporary period. of time, basically all of a sudden to try to win back market share. And in their explanation, they basically say, look, guys, we tried our best. We love the creators. We really try to

fight for you. But, you know, the capitalists are here. They've broken down the doors. There's nothing we can do anymore to protect you from their, from their savagery. What was that like for you guys? When you saw this happen, what was going through your mind? Yeah, it's funny. I won't, I won't reveal too much because I do, I do try to respect the privacy, but, you know, in general, we've tried not to antagonize open sea. We, we like to be cordial when we can. We've had conversations with them. We had a conversation with them before they made this move about enforcing royalties on collections that, that, you know, were white listing both blur and open sea at the same time. And, you know, I made a very clear of them. It's like, we don't, we don't want to be here, like, let's just try to find a solution. And that makes sense for everyone. Like, it was, you know, when, if you read in our blog posts, you know, what we say at the bottom, you know, why it has an open C removed blur from their block list. And we say, you know, I think that they have the same goal, but we just have different perspectives on, on what makes

sense as a solution. And we try to be neutral. And then before they made the announcement, I was like, hey, like, you know, like, let's keep on trying to collaborate, like, hoping you make like a neutral announcement. And then we read the tweet thread. It's like, Blur is the reason why that we're going to zero fees. And I was like, oh my God, this is definitely not neutral. So I was just kind of like shocked initially. I was like, the tone was just like very surprising to me. It was very disappointing, honestly. But then I think I think the, there was an incredible outpouring of support from the community towards Blur afterwards. I think a lot of the community kind of saw the market and the players and the motivations behind the players

in the same way that we saw versus before. I feel like there was more of like a rose-colored lens that just wasn't actually matching reality. So it was kind of validating in a way because, you know, since we had launched, like after OpenC launched the operator filter, collections would launch and they actually, you know, it was just so confusing for collections, like popular collections launched. And they didn't know how to implement the operator filter. and we literally would help them block blur so that they wouldn't trade on blur because OpenC would zero out royalties if a collection traded on blur.

So we're literally like helping devs as a collection was launching block blur. And this entire time, the general sentiment was that blur was like evading royalties and like trying to like hurt royalties. And it was quite upsetting because, you know, we've only ever really tried to maximize royalties, but in a way that is ultimately sustainable and not not going against the market. market forces because it was very clear to us that, you know, there's going to be a sustainable end state at some point in time. This like whiplashing, like full, you know, all or nothing royalty enforcement is just, it's just fundamentally unsustainable. It's very clear to us that it was fundamentally unsustainable. We've really tried to work towards something that was sustainable, but it kind of felt like the entire time that we were antagonized and that kind of started

shifting, you know, since they made their move. So that was validating, I would say. it really is a David versus Goliard because OpenC, honestly, throughout all of 2021, 2021, the product was just at a standstill. They were just kind of soaking up all the liquidity, all the trading volume. And we always wondered, like, when is somebody finally going to take a run at them? And it just felt, like you said, it's so hard to unseat marketplaces once they have that network effect of the buyers and the sellers and liquidity and all that stuff. that I was just like, is this ever,

is the reign of OpenC ever going to end? And within basically the last week, but the first time ever, Blur is the first ever NFT exchange since 2020 to have more volume than OpenC. Users, you guys are almost neck and neck for users. It's absolutely insane to watch. And it's a good reminder that no matter

how strong you think of Monopoly is, there's always a path to be able to unseat it. And Blurred through a bunch of, beautiful strategic moves. You guys have showed a path to do that. Thank you. I will say, you know, the thing, the thing about network effects is they really are so brutally strong, you know, so, so brutally strong. The only reason why we thought that there was a chance was because, you know, even in the bull market, uh, when there are more retail than in the space than there are now, it just does some basic data analysis. You could see that actually the, the majority of volume was

driven by a small handful of power users. And any sort of, you know, speculative or financialized market over time professionalizes. You saw this in the token trading market where you started with like Mount Cox and like Coinbase, very retail friendly way to buy and sell crypto. And then over time, you have more and more professionalized infrastructure develop, finance, OKX, Deribit, you know, who will be all of these more advanced trading platforms arise. And then, of course, the volume professionalizes. And now it's like a handful of market makers make up the vast majority of volume in the space. It was very clear to us that NFTs were heading in that direction. And then even in the bull market, NFTs were very much, you know, power law driven.

So the only reason why it was possible was because structurally the market was not sound as it was. No one was serving the power users. It's funny because as we were building blur, we had so much commentary about how it would be impossible for blur to, you know, make a dent in the network, you know, open-season network effects were too strong. And then now that we came out on top and have more volume than them, we see a lot of comments like, oh, blur succeeding just shows that anyone can still market share from any of these marketplaces at any point in time. And it's like, it's just, it's really, it's funny because it's just like, that's, that's not

actually how the market works. The network effects are incredibly sicky. The only thing that is possible is if there's a huge unmet need in the market. There's really only two segmentations that makes sense. It's retail and professional. no one was serving the professional market before Blur, but now that blur is dominant amongst the professional market, the same things that made OpenC so hard to unseat

are going to be the same things that make Blur so hard to unseat. So, you know, of course, as core contributors, I genuinely think that, you know, staying paranoid at all times is the right operating model. So it's not about, you know, resting on our laurels or anything like that. But it's just, you know, people who say, oh, like, blur, like this, Blur succeeding just shows how weak these network effects are. They're not accurate at all about that.

I think it's also a sign that like you guys had to get so many things right to unseat opency. There was sort of multiple or another way to describe that is that opency had to had to mess up in multiple ways in order to end up losing market share to a new upstart exchange. And you know, one can argue about what those strategic mistakes were. But it's very clear. And I think most people kind of had this feeling about opency is that. they kind of had gotten a bit too comfortable with their position.

And this kind of always happens when you have an ineffective monopoly that gets knocked down is that they get very comfortable with this idea that, ah, you know, we kind of, we have a lock on this market, we can kind of do what we want, we can set prices however we wish, we don't have to be responsive to competitors. And suddenly they get woken up. And here we are now with both opency and blur, now having the same fee structure after basically like, you know, a good two years of OpenC just raking in cash and completely owning the market. Yeah, it's quite interesting because, you know, when we started, our vision for blur has not changed in the past 400 days.

But everything that had to happen, you know, even just, you know, starting and raising our $11 million round from paradigm, building up a team, you know, primarily through our MIT network. Gallagher and I, we recruited, you know, through our network from, you know, friends who had worked in trading and real-time systems. So, you know, like our engineers from like Citadel, Fivirang's Capital, a very unique engineering team that had the capability to build such a system. And then even then in that time, we've had to build, you know, in stealth, really nonstop every single day. And also we were reliant on, you know, the existing players, basically not catching on and building what we had built until we gained sufficient market share. So all of those things really had to align in order for, you know, Blurst to succeed. and and then now it's like we see we just see people in the market being like oh like this this new player is going to be the next blur or this other player is going to be the next blur and it's like

it's if i wish it were that easy for us to get to get to this position um and also i think a lot of times what i've seen in the market is the nfts space has not internalized the lessons that the defy world has internalized which is like so strange because you know it's like this is all like web three crypto, like we're neighbors, but it seems like there's not as much cross-pollination as we would have assumed. And we've seen in Defi that anytime there's a leading protocol developed, whenever someone copy-paste it, it can get like some traction, but ultimately, you know, they just, they just get smaller and smaller and smaller. You can't actually gain any share by just copy-pacing, you know, the leading player. And we see people, you know, copy-pacing blur and then, you know,

excitement for the copy-paste protocols. And it's just like, that's, That's not really how this space works. And I really wish it were that easy for us, but it wasn't. And we'll, of course, stay on our toes and never want to be hubristic. But it just doesn't really seem like the market internalizes a lot of lessons that are just like, you know, right across the street, really, in the defy world. I guess one thing as an analogy I would maybe kind of compare to is maybe this is a bad example for some reasons, but you mentioned it earlier.

Pac-Man, which is FTX. I remember in 2018 and 2017, there were just like a million new centralized exchanges. Like everyone and their mom was like, I'm going to make a centralized exchange. Like if you were a Chinese unicorn, you somehow had to have a, I'm making a crypto exchange centralized exchange plan.

And, you know, none of those exchanges had any differentiation other than like, hey, we're just going to like bring our users from our app into this, which then, of course, the Chinese government slapped them in the face and said, you can't. You know, FTX came out of this, this sort of like weird thing where like everyone was kind of negative on crypto exchanges because all of these exchanges that had raised tons of money had kind of like failed. And their main thing was just focusing on sort of the institutional broker-dealer type of people at the very beginning. So there's a lot of similarities, I was wondering where you're going to take that. But okay, it's the institutional

you're like pro super thing okay i thought you were going to say like oh it's the liquidity from alameda and i was like no i don't think you i don't think you want to go there uh okay you know the beautiful the beautiful thing there is yeah i mean one of the beautiful things about daps and on chain protocols is that you know unlike the centralized businesses everything is on chain everything is verifiable it's so cool when when we build and see you know there's so like so many of the dashboards that i've wanted to make myself, I just search on Dune and there's already something there. And it's great. And it's honestly, like, they made it like look prettier than I would have even made it. So it's like, it's more appealing to, to use even internally than anything I would have done. So having everything

be on chain is really incredible. I think that there are a lot of parallels, though. And it's that, that's ultimately what we saw. If you look at the token trading world, you've seen this strategy play out multiple times where finance did it with, you know, Coinbase, right? Like, They build this crypto-native exchange and then they expanded from there. And then FTX, of course, like token infrastructure is even more financialized than NFTs. NFTs are moving in that direction, but obviously it's still very, very early. Ultimately, you know, FTX pulled a similar strategy where they focused even on even more of a niche than Binance did and then expanded. So ultimately, there are definitely parallels there.

And, you know, FTCS did not help our growth. But what's cool is that, you know, all of the growth that blur experience has been. in the wake of that financial prices, that FTCS collapse in the worst bear market that we've seen in crypto. So that just makes us even more excited about the space because I think the NFTs have really proven to have a longevity and stickiness that no one really expected. I think you made a really good point around sort of these existing players not picking up on the meta shift towards sort of these professional traders and away from one of ones to PFPs. And we're also leaning into sort of the way PFPs are traded with collection bidding and floor

bidding and like, you know, sort of this new dynamic versus just sort of having a, your, generic, you know, order book that might be more fitting for a different type of asset. What do you think is going to be the new meta shift or the next meta shift in how NFTs are traded? People have been trying to make NFT AMMs for a while and they've kind of had very, you know, middling success. Do you think that's going to be what the future looks like? Or how do you sort of see, you know, the next generation of exchanges? Yeah, I think that, you know, the general trend that, you know, as contributors we're building towards is ultimately, if you look at token trading infrastructure,

you know, it's had a decade to professionalize. And you started with spot trading. And then you had, you know, derivatives, margin, futures, options, you know, et cetera, et cetera. And as that advanced infrastructure was developed, obviously the space, the tam of the space grew massively, you know, beyond what anyone really expected. We're seeing a similar trend in NFTs, but it is a different asset class. So we've seen a lot of like copy paste attempts where there's, you know, literally like a lot of the protocols, like the NFT5 protocols that we've seen today are like literally copying, pacing, defy protocols and just, you know, changing it so that it works with ERC 721s instead of ERC 20s. And, you know, nothing that we've seen has really excited us.

But I will say that I think that that is the general direction that we're going to see in the space. That's something that we're very excited about because I think there's just, you know, massive growth there and obviously something that we're actively researching, but I wouldn't say I've seen anything, you know, particularly exciting just yet. And when it comes to the AMMs, you know, when Uniswop launched, there was so much fud about it because it is a fundamentally very inefficient model. The, there are many reasons why it works. You know, one of the reasons is, you know, for essentialized exchanges, it's like getting listed is such a pain. And you, you know, for most tokens, like they can't even get listed on a lot of these exchanges, right?

So Unoswap kind of had this like, if you look at the market structure, you know, Unosw serves a need that basically like even though it was so inefficient and shitty, like it was actually your best option. And then of course there's also, you know, some specific regulatory reasons for why they couldn't offer a off-chain orderbook. Like Ether Delta did this and it got shut down. NFTs as digital collectibles, they operate in a different regulatory environment. you know, all of the marketplaces operate with a, you know, off-chain orderbook or off-chain

Oracle. And when you compare an order book model to an AMM model, the order book model is much more capital efficient. So when I've seen the excitement around AMMs and NFTs, it's, it's been quite surprising to me because it is fundamentally a more inefficient model. Any system that you can design via an AMM, you can design via an off-chain model more efficiently. So it just, you know, when we've seen some, you know, the excitement is, you know, never say never, right? It's like the thing about technology is that you can never really predict when things will work or don't work.

You don't only kind of take educated guesses. But I would be very surprised if the AMM model really proves to be a, you know, successful leading model in the space. So, Bagman, you talked about how now that Blur has really kind of busted out on the scene, a lot of people are murmuring about, oh, this thing is going to be the next platform. blur, that's going to be the next blur. How do you think, like, how do you prevent a blur from getting blurred? How do you stop somebody from aggregating you and doing a similar playbook that you guys did on OpenC to you? Yeah, I think that when you look at the defy world, you've seen this play out already where Uniswap got sushied and, you know, by literally just being copy-paced. And then Uniswap came out and they, you know, sushied

sushi by dropping their own token and it, you know, sucked people back away from sushi. And, and then of course, univap one, one out, right? Because soon as she wasn't anything new, when we look at the market structure, it's like, if you had asked us to build a competitor to OpenC going after retail by introducing a tokenomic model and like liquidity mining, I would have said, you know, find another team to do that because I don't want to waste my time and there's much better things to do. ultimately it would have been a, I think a Herculean task, I think basically impossible to actually go after OpenC's market the same way that going after the same, you know, retail user base. There's not really any sort of token incentive that you can provide that makes up for lack of liquidity.

Right. So like if I'm selling like a $50,000 JPEG, it doesn't like I can't really get enough tokens to make up for the fact that like if I list on a new marketplace going up to the same user, it might not sell at all. and I just can't really justify not listing on like the main marketplace. So you can't really utilize token incentives like make up for a lack of liquidity. You can really only go after a specific segment that isn't well served. So I think when I when I observe the market, people talk about vertical marketplaces. In general, I'm not very bullish on the vertical market thesis. It's like you don't really see vertical exchanges for tokens, even though there are many different tokens with different use cases. is, you know, I think there's a few types of NFTs where vertical markets make sense.

And I think that you can do something there. Like, for example, ENS, there's a site, EnS vision where it's like you get to type in the names. You can filter by like alphabetically and upload like a big spreadsheet of names. Like, you know, buying and selling domain names is a very different experience than buying and selling, you know, PFPs. And so like you can carve out a niche there. You don't even need like a token model to do that. Like you can just like carve out a niche there. Maybe the token model can like accelerate things a little bit as like a marketing expense.

But, you know, ultimately it needs to be something where it, the existing users just not being served very well. And when we evaluate the NFT market today, I don't really see those same horizontal gaps as we saw with, you know, OpenC and the pro market. You know, maybe that can change, right? It's like hard to predict the future. But as it stands today, you know, people talk about like, they're getting blurred. And it's just like, you know, it's just, I really wish it were that easy for us. Like, it would have been just so much easier. You know, I literally haven't left the office in a month.

Like I would take, like, split breaks on the balcony. Literally haven't even stepped outside of the office. And just like to imagine, you know, a team just like casually, you know, dropping a token, copy pasting our designs and doing some sort of model. And vampire attacking blurry would just, it would just be surprising. I'm sure OpenC was surprised too when they saw this happening to them but I take your point

and it sounds like you guys have been through a gauntlet to get to where you are and I guess the last thing that I want to end on so first of all this was really fantastic insight thanks for sharing this I think you know we spend a lot of our time talking entrepreneurs because of course

the four of us are investors and a lot of entrepreneurs especially now after the collapse of FTX and the market kind of being in this weird state a lot of people just feel like you know, what can I do? You know, like how can I actually get some traction? How can I actually take on an incumbent when there's so little dynamism in the market?

Not that much is happening. And you guys are a perfect example of how just understanding enough about the microstructure of the market and having enough insight about how to create a better product and go after users, you can go after the biggest fish in the industry. You can go after one of the most highly valued private companies in the space and, you know, end up going toe to toe to them and bringing them down. The last thing I want to end on is about royalties, because I think before on the show,

we had a debate about royalties, and I was firmly on the side that I thought royalties were going to go away, that they were going to be a thing of the past. And now I think we're basically there. I don't think there's anyone at this point who really seriously believes royalties, at least in the state they were before.

Obviously, now you guys are enforcing, I think, 50-bibs royalties, and OpenC is doing the same. But it's kind of like, it's sort of like the royal family after the end of the monarchy, you know, like they're sort of theirs, figureheads, but they don't, they don't really do anything anymore? What do you guys think, to ruin Robert Tom, like, do you think this is good, this is bad? Are you disappointed? Are you like, hurrah, hurrah. How do you feel about the

death of royalties? I think it's good and bad. So I think it's bad because I think it violates the original expectations and intent of a lot of the creators that made NFTs. right, whether they are rightly or wrongfully thought that they were implementing royalties correctly, they expected royalties. So I think doing away with them is fundamentally bad because even though, you know, their fault they got had, right? All the creators. Like, because they're not as good technically as like the open sea and blur development teams

that's okay. Like the creators are on the losing end here. and I think that's fundamentally somewhat bad. I think long term it's potentially good because it's going to force everyone to up their game and to build systems that actually work and are resistant to blur and are resistant to other platforms

and implement the technology for royalties the way people expect or they're going to make fundamental changes and rethink it entirely. But long term, I think it's going to lead to sort of like a better end state, but, you know, I kind of think it's, you know, a sad thing that royalties are going away, not from their own volition, but from the platforms, really kind of cutting off the artists and creators.

Tom, what's your take? Yeah, I mean, I think we were always in kind of a weird, like, unsteady equilibrium when it came to royalties, right? And we knew that something was going to shift. You kind of saw this stuff bubbling under the surface. the way it was in the past was kind of weird where artists were almost sort of freewriting and relying on these third parties, these exchanges to like generate revenue for them. When in reality, they should be thinking about how can I get buyers to want to pay royalties to me?

Like instead of just there's this third party transaction happening over here and I somehow get to continually skim, how can I actually build up a stronger relationship with the people who are going to be part of my community and like actually lean into that more? So I think it's a nice sort of wiping this slate clean and hopefully creating a new opportunity for people to think about what the futures of NFT economics are going to look like. Turin? I kind of more of the mindset that, you know, the market microstructure being more efficient means like you can start doing more clever things with NFTs. Maybe it's not like lending or perps because that's just like copy pasting an idea that exists, but maybe it's some notion of. of like a different form of trading that just doesn't work at high royalties streams.

Right. I mean, there's just a ton of products that work better when the slippage costs are lower. And, you know, it could be that it's something where there's a new product made to avoid slippage costs. So, you know, like perps in some ways exist as the largest market in crypto because people wanted to avoid the spot trading costs. and they wanted more leverage with low collateral, right? Like kind of very simple needs. They also kind of were popular because spot trading fees were so much higher than perp trading fees for a long time. Arguably, that's sort of the Binance, how, you know, the Binance FTCS kind of era of the last bear market was. And so I just think it's going to be more interesting to see what kind of, yeah, the future type of products look like.

I do think there will be something like that has leverage, but it'll only kind of work at like very low fees and some notion of how you can like fractionalize collections correctly and like only offer leverage on certain parts of them and not others. There's a very, there's a very mechanistic answer in line with true, but how do you feel? How do you feel about the death of? Why is that, why is that such a bad thing? Like, come on. I didn't say it's a bad thing, but I just want to know it's an emotional.

Response. What is your, what does your heart tell you to read? So, you know, I used to make a lot of generative art. And a lot of my friends who I meet at art conferences got really rich in 2020. A lot of them quit their jobs and were like, hey, we're just going to like live off our NFTs, art block streams and stuff like that. And, you know, I feel like I was really happy for them. But I was always like, this seems unsustainable. And, yeah, the lottery tickets over. I don't know. It just seems like, natural state of nature. They're all so angry, and every time I talk to them, I just like, I'm like, you don't realize

that you won a lottery ticket, right? Like, I just like, take it and just like accept it. But somehow people want to pretend lottery tickets or annuities. Yeah. Well, I'd say my take, like I said, when we were on that debate, I was probably the most vocal anti-royalty person, not because I think royalties are bad in and of themselves, but I just think, they just don't really make sense, and they were always kind of doomed for this outcome. Unless they can be enforced on chain, the number one thing that you learn in blockchain is that

if it's not enforced in the code, it's going to eventually go away. And I can't think of a single counter example to that pretty much ever, that if this thing is not actually enforced by code, that it won't survive. And royalties were that. Royalties were basically a gentleman's agreement from a bunch of monopolists that they were going to keep paying the subsidy to artists. and eventually economics and competition and all that stuff reared its ugly head as it always does.

And all of a sudden the goodwill evaporated because people started to feel their market share under threat. And at the end of the day, I think the thing that it forces people to do is to innovate. That's always the answer. It's always, always, always the answer is to innovate. So whether it's innovating on the side of marketplaces, whether it's innovating on the side of artists,

where there's people trying to figure out different kinds of revenue streams that they can earn from their, from their supporters and from their fans. I don't think it will ever be the case. They're like, oh, OpenC is no longer charging. They're no longer enforcing royalties, therefore artists are going to starve.

Like that's obviously absurd. That's not what's going to happen. What's going to happen is that artists are going to have to find new ways to, despite the fact that markets are now becoming more efficient and trading fees are lower, they're going to have to find new ways to engage their audiences, and they will step up to the task because that's what human beings do. So, Pac-Man, I want to give you the last word.

How do you feel about the, maybe let's call it the the assistant homicide of royalties. Definitely feel fatigued and somewhat regretful. When the royalty debate first got very heated and obviously came out with the operator filter, we try to have conversations with a few players in the space and just lay it out and just be like, hey, like, here's all the logic. Here's what we think is going to happen. here's what we think could maybe alter the course and like let's try to have a conversation

with it about it. Ultimately, none of those conversations were fruitful. There was basically zero interest in having a conversation. And I think now a lot of the players in the space kind of feels like OpenC pulled the rug out from under them. And I just know that, you know, if those conversations were had, there could have actually been a plan push forward that that likely could have been a different, you know, because multiple paths were possible. It's not like this was the only path possible. So I feel like there could have been a plan put forward that would have made everyone actually a lot happier. I think it's very hard to adapt to changing metas, especially once you get used to existing metas. Like everyone is at risk of that, you know, including ourselves, right?

So it's very important to, I think, maintain like neuroplasticity, especially when it comes to the Web3 space, which is just the space changes on a week by week. week, oftentimes, like day by day basis. And it's just very important to keep that in mind. Until you reach like a seti state, then you can't really get used to any sort of meta. And even once that seti state is reached, who knows what you change is just going to change the meta. So, you know, I think we're here now. We can have productive conversations. I think that, you know, the space will innovate. This is a really incredible primitive. That hasn't changed. You know, I wish, I wish it happened in a different way where I think people could have really been a lot more

prepared than they were. But we're here now. And I think that ultimately, NFTs survived the worst bear market in history and are really one of the only things that grew in that bear market. Ultimately, my belief is that NFTs are more accessible to the broader public than even tokens. I think that they're going to get bigger than tokens. I'm very excited about that future. And we're going to continue working to make that happen. Honestly, I think in the long run, you guys did OpenC a favor because competition, the one thing competition does, it makes everybody step their game up. It makes everybody get better. And that's true for OpenC. It's obviously true for you guys now that OpenC has really woken up to the threat

that Blur is. And I think it's also true for creators. That creators have to step up and they have to do more in order to earn their keep. If they want to keep on their lottery ticket, they got to earn it every single day rather than just win it when NFTs are going crazy. And the consumers win at the end of the day. This all benefits them. That's right. So Pac-Man thank you for walking us through your thinking at Blur. It's been incredible to see your guys' success. And wish you and your competitors all the best. Thank you, sir.

All right. That's it for this week. Signing off. Thanks, everybody.