Unchained - The Chopping Block: Which DeFi Metrics Are Still Useful in a Bear Market? - Ep. 550

Episode Date: September 30, 2023

Welcome to The Chopping Block – where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner chop it up about the latest news. This week, the group sits down to discuss why U.S. crypto conferences are quieter than they have been in the past, which DeFi metrics are still useful for measuring a changing market, and advice for NFT founders on how to continue to innovate. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show highlights:  Why Tarun says that the U.S. is “dead as a doorknob” for crypto for crypto conferences Main takeaways from recent crypto conferences such as Token2049 in Singapore and Permissionless in Austin How the metrics in DeFi keep changing, and which ones still have merit What are “chart crimes” and the gang's advice for entrepreneurs pitching to VCs Why Haseeb doesn't think that token economics are as useful as everyone thinks The Stoner Cat settlement with the SEC and how it impacts the broader conversation about whether NFTs are securities  Legal drama between the co-founders of the Milady NFT project Advice for NFT founders on how to achieve success in a changing market Hosts Haseeb Qureshi, managing partner at Dragonfly  Robert Leshner, founder of Compound Tom Schmidt, general partner at Dragonfly  Tarun Chitra, managing partner at Robot Ventures Disclosures Links NFTs Unchained:  Mila Kunis’ Stoner Cats NFT Project Pays $1 Million to Settle SEC Charges  Milady NFT Founder Says Rogue Developer Embezzled $1 Million from Treasury PFP NFTs: What Are They & Why Are They So Popular? Generative Art NFTs: What Are They & Why Are They So Popular? SEC: Are NFTs Securities? Token2049: Haseeb’s panel on alt L1s DeFi and metrics: Unchained: What Is TVL in DeFi? A Guide to Total Value Locked Can DeFi Allow You To Be Your Own Bank? How to Invest in DeFi: 4 Ways You Can Explore Today Yield Farming: What Is It & How Does It Work? Regulation Unchained: U.S. House Lawmakers Urge SEC's Gensler to Approve Spot Bitcoin ETFs The Block: Gensler takes heat from lawmakers over his approach to regulating crypto Learn more about your ad choices. Visit megaphone.fm/adchoices

token economics can do way less than the industry on the whole has claimed that it's able to do. And so for the most part, I sort of consider token economics to be a little bit of a dirty word today compared to how I saw it two years ago. Not a dividend. It's a tale of two quons. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. I'm named trading firms who are very involved.

I like that eat is the ultimate. D5 protocols are the antidote to this problem. Hello, everybody. 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. So quick intros, first we got Tom, the Defy Maven, and Master of Memes. Next, we got Robert, the Cryptoconist, and Tsar of Super State. Then we've got Turun, the Gigabre, and Granth, and Granite at Conrad. And finally, I'm Hesiebaud, the head hypeman at Dragonfly. So we're at 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 x. X.Y Z for more disclosures. All right. So it's been a crazy couple of weeks. There's been a lot of conferencing going on. I think most of us, minus Robert, we're at Token 2049 in Asia. I guess Tom and Turun, you guys are back in the States. There was also Mainnet in New York. What's been the vibe? Give me the brain dump of what conferencing has felt like in the last few weeks. The U.S. is dead as a doorknob for crypto. It seemed like the U.S. conferences had less attendance than they normally do amongst other things, whereas the Asia conferences were crazy. Like, I just didn't think there were 12,000 people who wanted to go to a crypto conference in 2023. And clearly there was much more in Singapore. Singapore was insane.

Yeah, I think token 2049 had more people than Heath Denver. Like, it was pretty wild. I mean, it is like the premier event in Asia. And it sold out. Yeah. Yeah. It was a gigantic venue, right? I mean, obviously, East Denver was a very large venue as well, but it was, it was absolutely massive. Robert, you were at permissionless. How did permissionless feel? I mean, compared to prior years, permissionless felt, you know, pretty quiet. Really high quality group of people, you know, the conference goers that were showing up to a conference in Austin, Texas during a relatively hot week in September, were not totally like broad retail audience. It was mostly people that were closer to industry, closer to things happening in the space and a little bit more informed than, you know, I've seen elsewhere. So small.

It felt like token 2049 pulled a lot of people last minute from. permissionless. I think a lot of people were planning to go and then decided like, oh, shit, this seems like there's too much happening in Asia. I got to go out there. So I think the timing was a little unfortunate for permissionless, but there was a clip of Eric Vorhe's giving, I guess what was like the keynote. It was pretty amazing. If you haven't seen it, I would strongly recommend watching it. It's got like a couple million views or something. And it's essentially just like a rallying cry, just sort of a credo of, hey, you know, screw the government, like we're trying to build a decentralized alternative financial system.

and it really kind of plucked to the heartstrings. I don't know. Do you see that live? I did not see that live. I actually had to take off right before that speech, but I was able to watch it online afterwards. It reminded me a little bit of his debate with SBF, I think, like a year ago.

It was almost like it was like a month right before FTX collapsed. And it was similarly kind of getting back to kind of the core religion, ethos of crypto. Yeah, we got to get him on the show at some point. He's definitely, he's a very good bear market. In a bull market, I always, feel like Eric is a little too centered and like too grounded. Bull markets that kind of demand a bit more craziness and levity. But in a bear market, I feel like he's got this gravity that is very clarifying. I really, I really appreciate the role that he's come to play as

like the elder statesman of the industry. Any other takeaways from Token 2049? I mean, we were out in Asia for a couple weeks. The videos have just started going up for Token 2049. And I did one panel that I moderated with a bunch of L-1s. And it was actually probably the most entertaining panel I did. I did several panels while I was out there, but most of them were kind of, you know, they were great. But this one, we had, it was Aptos, Swee, Avalanche, and Nier, all of whom were on stage. And Goon, who's been on the show a couple times, Goon was just like, he just basically was ready to pick a fight. And so they just got on stage. They were scrapping. They were like interrupting each other and getting super aggressive. And it was honestly the most entertaining

panel I think I've ever moderated, just from how angry everyone was on stage. So any other highlights or anything that stood out to you guys while you were giving talks or moderating? I don't know about being on stage, but I will say there was a little bit of a bizarre world moment with Token4292 where obviously a lot of high quality projects, a lot of good representation throughout the industry. And then there were a lot of random projects I'd never heard of that had these like massive, you know, sort of neon lit up boots that they clearly spent a bunch of money on. I believe Islamic Coin was one of the large sponsors. I'm a not an Islamic coin expert, but there's another sort of meme floating around. They're doing a public crowd sale for Islamic coin at purportedly a $30 billion FDV. What?

It's like $60 million raise. Wait, so is three times Worldcoin? But they went on Twitter to explain that this is a 100-year FDV. And so in reality, the near-term FDV that you're investing into is not nearly a high. So, you know, the near-term market cap. I think we need to add some extra FDV numbers into Coin Gecko, just so we can start out of the near-term FTV, long-term FDV. You know, I think an interesting thing related to this, that's this tiny deviation, but important

to note, is the history of finance actually has had a lot of things where the introduction of a new financial metric as a form of reporting completely changes company structure, like EBITDA, right? Like, why does EBITDA exist, like earnings before income, tax, depreciation? depreciation and amortization. And it's like, because it was just some company that was losing money and they started reporting EBITDA instead of like true profits, but that kept them afloat for long enough to raise financing. And then EBITDA now became like the accounting standard over time, right? So I kind of think that these FDV games, we're going to just see this like

war of all these metrics and whichever metric is like the market wants will eventually be the standard and everyone will just try to optimize that. Yeah, this is 100% what happened to TVL. Yeah, TVL in principle makes sense as a number, right? But how do you count TVL? Do you count your own token? Do you count rap versions of your token? If somebody wraps your token and puts it back in your protocol, is that double the TVL? Like, you know, Defi Lama just decided how TVL gets counted.

And then the rest of the world just warped around the way that, you know, these metrics decided to get reported. And, of course, you saw that on Solana, where, like, all these people were recursively kind of putting TVL from one protocol back in another one, back in another one. Now I think we've gotten better at not double counting, triple counting. But back in 2021, when DeFi was in full thrust, it was just whatever goes. That's TV. The other chart crime that exists that really irks me is when people show cumulative charts instead of like instantaneous charts. I just like kills me.

I will say as a VC, let this be like a little one-on-one lesson. As a VC, we absolutely hate cumulative charts. We understand that cumulative charts look good. So for those who don't understand, a cumulative chart, normally when you have a chart, look, here are the number of transactions every day, right? Only goes up. The cumulative chart is here is the total number of transaction volume ever

if you add it all together. And the nicely by cumulative charts is that they look like they're going up into the right always, no matter what, because they're adding, you know, it's like the number of how many trades have been done number. It's adding positive number, yeah. Exactly. The problem is that it is useless to look at as a VC.

When you has a VC and you look at a cumulative chart, what I assume is that your actual chart looks like dog shit. And that's why you're showing the accumulative chart. So in general, don't show it cumulative chart. However, if it's a chart with multiple dimension shown, if it's a cumulative chart and a daily or time period flow together, then it's cool. Is it cool? I would rather just have a daily.

You know, I'm already doing the first derivative of a cumulative of a cumulative. Here's why. Okay, let's say you have a daily chart and it's like net inflows where like some days are positive, some days are negative, some days are positive, some days are negative. You don't know the total ramification of it. But that's a net chart, not a cumulative chart, right? So if you're net gains and losses and you're getting like P&L or something like that or net inflows or net inflows, that's not a cumulative chart.

That's very different because that does not go up into the right. I agree. No, no. I think then it's well complemented with a cumulative on the other access behind it. Net and cumulative are two different things. I did see it. I agree. That's just a UM.

We should have a chart. episode. This is it. This is the chart prime episode. This is it. This is the episode. Yeah, we're not going to know. This is the truest of VC true crime. It was inflows for FrenTech, but they didn't take out the outflows. So it was literally just any deposits into Frentec added to the chart. And so, of course, you assume you're going to be looking at a net chart. And in fact, it's any sort of deposit, you know, adds to the overall chart, which is kind of a useless metric. Chart crime, chart crime. Any other any other chart crimes that? that come to my as long as we're on the topic. I think these like fee accumulated ones where they're like people who are like trying to

annualize, I think people annualizing certain types of fee accrual and crypto sometimes makes no fucking sense because it's very event driven like, oh, like there's a ton of fees from one event and then like zero forever. But they always like choose the right time scale so that they can say like, we have at least X of fees. Like I understand how integrals and derivatives work and you're just trying to play with the boundary conditions. Yeah, I mean, I saw a lot of this in 2021 when a bunch of people, like a bunch of businesses that had a bunch of random core businesses, but almost all of them had tokens on the balance sheet.

And those tokens went up and they counted that as revenue. And so they're just like, oh, you know, I had 50 million of revenue this year. And if you chart that forward, you know, another 50 next year and it's going to ramp this much. And I'm like, dude, your core business made like three million. And 50 million just came from tokens going up on your balance sheet. Like, that's not your business, you know. So that, I mean, it's kind of charty. I don't know if it's a chart crime per se.

But it's like EBITDA, right? Like, I think crypto still is so nascent and the idea of like what should count and what shouldn't and what flows are. It's still kind of an open thing of like what the accounting should be, right? So I kind of think I'm kind of curious what EBITDA, like the thing that becomes a like meme that sticks, that's not TVL and that that's not just like fees. What do you think you guys think it is? because I do feel like this bear market, my prediction is this bear market will end when we have invented what that is.

Like the last bear market ended when TVL started becoming the metric and then people started monitoring it and not gaming it as much. And it was just kind of going up slowly. I feel like the Salon of stuff games it even more where it was like, oh, here's the metric that everything's measured on. So what if we come up with these crazy ways to like that's usually the end of a bubble, right? Like once when it goes from creation. bubble baby. That was like the kickoff of the bubble. I know, I know, but my point is like,

once you start getting kind of a shelling point around a particular metric, it doesn't get game for a little while. Like there's like a certain amount of time where it like, it becomes a good real standard bearer, but then someone eventually realizes that it's the thing to game and then you get this like kind of

capital bubble around that. Like an AI, you're having that happen with tokens per second right now, which is also a fucking useless, meaningless thing because like The choice of architecture means the tokens aren't really the same. There's not fungibility of them. Sure. I think it feels like right now there's more and more fixation on revenue.

And so you're seeing like token terminal if you're looking at, there's just revenue, there's annualized revenue, there's price to sales, price to earnings. So it does feel like we're sort of morphing more closer to traditional revenue and underwriting metrics, which is a good sign. However, these metrics aren't totally normalized in the sense that, you know, for example, for Uniswap, does Uniswap have revenue? Like obviously the token holders aren't capturing anything. So the revenue is flowing entirely to, you could say like cost of goods sold is like 100% because all the revenue is going to the liquidity providers.

I would say, you know, one of the biggest issues is that you have like protocols that are not businesses. And people are trying to strap like business metrics or accounting metrics on them. And they're just not like Ethereum, Bitcoin. Like people are like, oh, like, you know, fees paid. Like is that revenue? No, it's not revenue. Right. Like, I don't think anyone thinks that like the transaction fees on Bitcoin or revenue. Are they on Ethereum? No. But like I've seen platforms that like talk about that alongside something like unoswap.

And it's like none of these really makes sense. It's just like someone trying to build not to knock anyone particular company, but someone trying to build a company about standardizing data is like, oh great. Let's like standardize how we look at everything. And I don't think it fits personally. I don't think these protocols living on top of blockchain. or necessarily businesses or need business metrics, I don't think it's that helpful. I think like projects and protocols might have their own unique metrics for success, like how many people are, you know, doing X, Y, and Z. And like, it won't always translate to the thing. What do you think are metrics that should be adopted in lieu of, you know, revenue or price of sales or whatever, all the stuff that people are doing to try to account for, you

know, particularly in DFI. I think for layer ones, it's a little more nebulous. I think it comes down to exactly like what the protocol is, right? So like a great example is even taking two things that like seem like they're the same. Let's say like uniswob versus like synthetics. So like well, both of them are for trading. Like, you know, one of them, you know, is for trading spot tokens and one of them is more like derivatives, right?

So like would you say like total notional traded? Like that might look crazy, you know, to use that as a comparison. Like I guess my point is like even two things that look the same are going to be vastly different when you think about how you judge them or measure them. And so all I'm trying to say. is like, you know, let's slow down and not trying to come up with one size fits all metrics. I don't think there is some like EBITDA type thing for DFI. Trying.

And when people get any shelling point on one of those, that's when you see capital formation happens because it's like, hey, look, there's this metric. We can optimize it. We see the growth curve, right? Like growth implies you have a number or a set of numbers and a derivative, like a gradient. And the gradient can go up and you're like, yes, pour more money in it. And I do feel like there's a number. like a psychological human behavior element to this. And crypto somehow plays with that in a lot of

ways. And that's some of its beauty is that the fact that it kind of plays with these. I think the revenue thing also is like a good, I agree. Like it's really difficult to sort of compare across different types of companies. But generally it's a good heuristic for understanding like product market fit and desirability, just showing willingness to pay. Right. Like you can't fudge it because I'm literally burning money. I'm spending money to use this protocol. Same thing with like, you know, net dollar retention, net revenue retention, overall, just like user retention. Like, yeah, like, I think that's generally sort of a good heuristic because it's showing that people are actually using these things consistently because they want to use it, not

because, ideally, you're sort of tying out the, any sort of. Yeah, I'm inclined to agree with this, is that although it is an abuse of nomenclature, I think you're better off thinking of protocols as products and thinking about, like, if you can, just applying very kind of dumb, simplistic, like, yeah, they don't work perfectly, but they're way better than just like finger in the air, what's TVL, and how do I feel like the vibes are trending for this particular protocol. I think at the very least it keeps you honest. If you look at the era pre when people had concrete metrics that they were looking at like protocol revenue and things like that, there were just a lot of things that had, you know,

take for example. Then you had 4chan economics because whatever was posted on 4chan was the truth. Totally, totally. And also like not looking at like net of emissions, looking at like willing to pay net of emissions. Like, you just end up with this crazy town where it's like, oh, there's basically like a negative cycle where people are making money by using your product.

And you're like, wow, I have product market fit. There was basically an entire year where every hot product in crypto was that. It was people, it was being like, wow, look how much adoption this is getting when it's really just people clicking a button that pays them every second. To be fair.

That is, it's so fucked. The enterprise SaaS bubble also had the same thing. It was just the way the capital was distributed it was different. Totally, totally, totally. Agreed. Agreed. It's not unique to crypto, right?

That was just... Every industry that has abundant capital has the risk of distorting the demand for the underlying product, right? Like a great example is like Uber subsidized all of its rides early on with that sweet venture capital money so that people would take a lot more Uber's than they would if they had to pay a full market rate. Right. And it worked and it was glorious and it built an incredible company. and that was in like a totally random industry like transportation when there was the appearance of plentiful capital. And so I don't think any industry that has external financing is like immune from this.

I think at the end of the day like every industry in some sense uses capital to grow more rapidly than it could, you know, without the presence of that capital. Like that's obvious and it's good and it's the whole reason that markets agreed. I think where I would part company with, I think, I think the direction you're taking that is that, you know, if you look at basically liquidity mining, farming, whatever, that's kind of been one of the core innovations in capital formation within crypto. And I think part of what made it confusing is that, okay, when you're subsidizing a product,

right, you're subsidizing some enterprise sales thing or you're, you know, I don't know, you're paying doctors to like prescribe your shitty drug or whatever it is. Like, it's pretty easy to look at the substance of that economic transaction and realize, ah, here's where the deadweight loss is happening. Here's where everything's being greased, right? We didn't really understand it in crypto. Maybe we should have. Maybe it should have been obvious.

But we really didn't understand the negative cycles that existed in this whole thing until it was pretty late in that process. We realized like, ah, okay, subsidizing something on chain can actually mask the fact that this thing doesn't have product market fit and people are just farming it, right? Like these concepts within, you know, probably a year, I think we got the hang of it. But before that, people really did believe, oh, people are farming. Like it's the old SBF, you know, put a thing in a box and tokenize it. A box analogy.

Exactly. It's a box analogy, right? Like, if people are farming the box, the box is valuable. We really kind of took a while to understand, like, no, no, that doesn't, that's not true. Like, this financial alchemy is just, it's masking this bullshit underneath. And once the market got the hang of that, I think we ended up in a more subtle place, which is that, hey, like now you have, I mean, I mean, Turin, obviously, you guys do this with a gauntlet.

look at on-chain emissions and try to figure out how valuable are you getting good ROI as a Dow for, you know, emitting tokens in order to attract certain kind of behavior that you want. You know what I'd go a step further is that I think a lot of what the industry was talking about in 2020, 2021, 2022 was how amazing token economics are. And how token economics can create completely different kinds of innovation and products and this and that. And I would argue that the record of token economics is absolutely fucking awful. and token economics can do way less than the industry on the whole

has claimed that it's able to do. And so for the most part, I sort of consider token economics to be a little bit of a dirty word today compared to how I saw it two years ago. Curious to get you guys take on that. Do you feel that, I mean, I think this is where you start to get

to differences between like the L1 and the application layer. Okay, so do you think that token economics of Ethereum? No, no. I think they're fine, but they're also quite simple. They also took a while to change.

if you think about it, right? Like, they've iterated on it slowly over eight years. Do you think the token economics of Bitcoin are broken? I mean, I'll personally say yes. Actually, I, yeah, yeah. You know one interesting thing I actually was I was like just at this, this conference today. And Neil Ferguson talk. And he was so pro defy and like kind of shitting on Bitcoin.

I was like very impressed by that. I was surprised to hear that. And part of his rationale was the bad token. I mean, you know, I generally agree with you, but I think there are, you know, you could certainly argue for an L1, like, you know, hey, isn't having high block-border emissions in the early days boosted up this network? Isn't that just like liquidity mining for validators, for miners? And then, you know, sort of slowly, you're tapering off over time.

And arguably, Ethereum did it correctly here. And so there are success stories, but it's not easy. It's not a one-size-fits-all kind of thing. And most people just don't. And Bitcoin, in a way, was kind of lucky that it turned out Bitcoin had an exponential growth curve in its price, and it had an exponential decay in its emissions. And the two kind of lined up perfectly. I mean, you could argue, like, maybe well, it was faded to do. I don't think it was faded. Like, it kind of seems like ex ante. It would be better if there were some PID or something that

Bitcoin tried to target some security ratio. Instead, it just kind of happened to work out, but it obviously will probably not continue to happen to work out as the emission goes to zero. I don't think so. I think a Bitcoin maxi is going to hear this show and be like, well, of course it's going to work out because the price of Bitcoin is going to double every four years. That's easy. If the rate goes to zero, like the price has to go to infinity, otherwise it breaks. So we need infinity by 2100. Well, unless the transaction fees, no, I disagree, unless the transaction fees really

replaced the block. So the thing that I always found, yeah, I mean, from an idea perspective, especially if you're going to, like, write a white paper and design a system, it actually seems like a pretty good process. Because like you would assume that if this thing was alive 20 years from its creation, clearly someone's using it. And there's a lot of usage and there's a lot of transaction fees that are going to, you know, obsolete the block reward itself. And so like, I don't know. I think it probably sounded brilliant, you know, then does it sound brilliant now while the transaction fees are not replacing the black reward? But we'll say. I also think that there's going to be security risks in

eight years, in nine years, like, major ones. Yeah. But we'll say. Tough to say. Okay. Let's roll forward. So we have a couple stories that I wanted to get to today. So one of them is that there's been, once again, a very large hack in crypto.

This hack is of a protocol called Mixen Network. They were hacked, and they claimed they lost about $200 million. And it appears that their cloud service provider was attacked. And they contacted Google, and they don't have the money. And so they've been kind of just roundly left at for basically the kind of this thin veneer of decentralization when in reality it seems like they're just a centralized database in some data center somewhere. It kind of feels like a similar story to multi-chain as we learned that this is also a Chinese multi-chain cross-chain bridge. And multi-chained kind of same story, they had just some centralized server that had the keys that had all the money and the money was stolen and the sister and something. It was kind of a ridiculous mess.

Well, yeah, yeah, since we're on the, the trope of Turun tells you rumors he heard in Asia, what I heard about the multi-chaid... I was waiting for the segment. Basically, and again, this is just a complete hearsay. I'm not, like, I'm disclaiming that for all the shit I've said about this type of stuff this week, is that apparently the Yunnan, which the province and China government, had like a $1.2 billion hole or something in their business. budget and then they realized this guy was there.

Oh, no. No, no. This was, I was surprised. Okay, let me just tell you. I was surprised at the type of person who was telling me this. So I was like, either it's, they have gone down the Snopes.com for Chan world or it's like 100% real. That it was like an organized thing against this guy. The rumor you heard, the person who created that rumor believes that a local government was trying to plug a shortfall. By taking it. Through crypto crime?

I mean, multi-chained like- I know, it sounds ridiculous. I, you know, just a podcast. We're trying to create entertainment here. I figured that. Anything for the views. Anything for the views. You know, whatever, whatever it takes.

This has now become the, um, Taroon rumor whispering. No, no, chart crime, chart crime. If you have any more. Rumor whisper. Very good. Very good. Any other hot rumors you got from China?

I think those only Islamic coin and, uh, multi-chain thing. Yeah, I, first all, mix it. I know, didn't even see them there. Did any of you hear of Mixon before? Before that... I always thought it was a privacy thing because the word mixing

makes me think of Minero, but apparently not. All right, well, you know what? We will move on because this story does not seem to have much substance beyond the shocking headline. There was another story.

We were a little bit late on this one, but there was a story about stoner cats. So stoner cats, if you remember, it was this, what was it, like Ashton Coocher and a bunch of celebrities that got together and made this

NFT collection of these stoner cats I think Vitalik did like some cameo in it, and they were going to be using the proceeds of these NFT collections to fund a TV show and a bunch of other IP that they were going to do from the Stoner Cat series. This is very early in the NFT bull market that Stoner Cats was around. They raised about $8 million selling 10,000 Stoner Cats in 2021. The SEC recently settled with Stoner Cats, and they had a civil penalty of $1 million and offer a fund to return money to any purchasers who wanted to,

get a refund, as well as destroy all of the NFTs in their possession. So the SEC basically said, look, Stoner Cats are securities. Why are they securities? They're securities, because stoner cats highlighted the ability to sell them on secondary marketplaces. They had 2.5% royalties, and they encouraged trading of the NFTs in order to collect more royalties. And the phrase they use was, the more successful to show, the more successful your NFT. So the NFTs, the show did actually exist. There were six episodes that were produced. You got 4.5 stars on IMDB, which is not, wait, is that out of 10 or is that out of five? That's not a good show.

That's maybe why they got sued. Yeah, okay, a lot of complaints. I mean, the idea that a high cat is a security is just almost like art. It feels like performance art thinking about this entire case. I feel like the facts of the case actually aren't that bad. Like, the show does exist. You can go watch it. It functions as this like NFT-gating mechanism.

Like it works. And I think in isolation, the idea of selling a pass to watch your show, if it's an NFTE, you're fine. But it was everything they did around that in terms of, like, marketing these NFTs, that just like so many red flags. I mean, they were talking about, like, you know, sweeping the stoner cat floor on Twitter and talking about, you know, they were sort of like encouraging trading of the NFTs themselves. And obviously, the whole, like, the more successful to show, the more successful with your

NFTs. So, I mean, I just feel like they were getting bad legal advice or no legal advice or something. but it's not like they, you know, promise some game and then they never delivered on it. On the other hand, by the way, did you see that Paris Hilton launched some new NFTs? This conversation about celebrities getting a ton of stuff from, you know, a ton of bad stuff happening to them from the last cycle because they like mindlessly endorsed shit that they didn't really think about. Like Trump trading cards? That was the first ever disclosure in a presidential candidacy of Ethereum holding. So let's give it some credit.

But the- I don't know Trump did disclosures. That's news to me. Well, no, he had, I think he had to for... Yeah, he held the ether and did not dispose of it. But, yeah, Paris Hilton has a new one. So I was like, those were the first sign of light I saw on the bear market of like a celebrity trying to make a thing. Or just Paris Hilton is kind of desperate.

I don't know, like this time. I don't know that that's a, I take that as a bull market sign that Paris Hilton has launched more FTs. I mean, the fact that she's doing it is, I don't know. I mean, are they selling? I have no clue. but the point is I would have thought the Stoner Cat settlement would have scared the shit out of every celebrity.

That seems like a sign that Parasilton is kind of desperate to make some money and hasn't gotten the memo that NFTs aren't selling anymore. She's a smart businesswoman. I don't think like she's actually quite capable and this actually is to me a bright sign. Okay, well, Tarun, I would recommend

that you start copy trading Parasulton if you really believe that. She has copy traded me before. Is that right? How's that? She joined Pleaser Dow much later at a much higher price. Okay, very good. Okay, so hold back to the story.

She copied traded me and Robert. Robert and I both were copy traded by Parasel. Okay. So look, if Stoner Katz is a security, like, yeah, okay, they said, you know, oh, you should trade the thing and, oh, you know, we're making a show. You could argue like, well, okay, they're making a show. They're raising money to, like, do some outside thing. And like that really looks like fundraising.

It still feels like, look, if Stoner Katz is a security, than like everything is. I mean, what, what besides Cryptopunks is not a security? Yeah, Roblox would be a security. I mean, like, this goes to the fact that like, I believe two out of the five commissioners wrote a pretty scathing, you know, rebuke of this is that it's a very tenuous line between a stoner cat NFT and like most other art and like most other art on a blockchain.

And like things that, you know, a couple years ago, you would have laughed if someone said that that was security. and that it also implies most things off-chain could potentially be securities that no one expects are. And so it seems like a pretty, you know, stretched interpretation that was settled. It never went to court. Who knows how it would have turned out. But, you know, I don't know if in 10 years we're going to say like, oh, yeah,

Stoner Cat NFT. Like that's, you know, very clearly, you know, a security strategy. Why? Yeah. Do you guys watch Richie Torres's grilling? of Gensler yesterday about the Pokemon card. Pokemon cards?

I feel like that. What exactly happened? Representative Torres from New York basically said like, hey, do you think of Pokemon cards of security? Like, Gensler was doing this hearing yesterday.

And he said, hey, do you think of Pokemon cards of security? And Gensler's like, no. And they said, do you think a tokenized version of a Pokemon card security? He says, maybe I'm not sure. And it was kind of like,

but he caught him, he caught him he caught him in a way where Gensler looked kind of like a fucking moron when he responded. And it was like quite, quite elegant. It was like a very elegant line of questioning. Yeah, but these are the things that like defy the public's expectations and like logic and like common sense. We're like if you asked a random person on the street, you know, if a Pokemon card was a security, they would say absolutely not. What are you talking about?

Like that it's like. Yeah, random person street does not even know what a security is. And what is a Pokemon card? I will say, you know, speaking of Pokemon, that's a Pokemon card. I will say, you know, speaking of Pokemon, Pokemon cards, I mean, this is a total aside, but I did not realize how popular Pokemon cards still are. Like, especially in Asia, you find Pokemon cards everywhere. Like, every 7-Eleven, they're just sitting there right by the cash register. What's the FDV of Pokemon cards? That is a good question. I don't know. Also, there's so many Pokemon now.

I feel like the card game must be impossible. That is an insane inflation rate, if you think about it. That's true. Yeah, we need some more disclosures. We need some, you know, supply schedule. We need FDV. Tradition. Like, what if they actually did security disclosures, right? Like, it would be, you're the risk factors for Pokemon cards. Instead, like, look, we know what we need. We need, like, the inflation schedule. We need the team allocation.

We know how to do this. I mean, to that point, like, the reality is, if you're buying Pokemon cards with an expectation of profit, right, you have no idea what the Pokemon company is going to do. The Pokemon company could change the rarity, change the supply, you know, ban prior cards, you know, make new ones, add Pokemon's, you know, take away Pokemon's, maybe Charzards no longer in the canon. That's why we need the SEC to protect us to make sure that that can't happen

without proper registration and disclosures. So thank you, Daddy Gensler. I highly recommend watching the interrogation of Gensler yesterday by Torres and then Emmer. They were just very funny. Like, just for the comedic value of like, I feel like Gensler is a little, is like, clearly someone who gets ruffled by, or seemingly, someone who gets ruffled by like very aggressive question asking, you would think he would

be like used to it by now, but clearly he's not. And like the Pokemon one like was like dagger. It was like very funny. Tom, tell us about what is happening in the Balev universe. We must know. There's a lawsuit between two of the Remilio co-founders. One, Charlotte is suing the other for misappropriating proceeds from these balkler sales, sort of like the milady noun's equivalent where they have this auction and you can buy them and they said, stole a million dollars. And now they're counter-suing and say, no, you know, actually you were the one who stole the funds and stole the IP. And I think it kind of goes, maybe there's a kind of broader story or idea here around

like sort of the extra protocol off-chain ongoings of NFTs are really interesting right now. Like pudgy penguins are in Walmart. They announced that they've, they've, They're doing these like plushy sales. So they're selling these in Walmart across the country now. But it's like very just orthogonal to what's actually happening with the NFTs themselves and sort of like the proceeds from those. And so I think overall NFTs are and NFT collections are kind of in this soul searching phase where, you know, okay, royalties are kind of dead.

Primaries are kind of dead. Like you're not you're not really generating. You're not really generating. And so everyone's kind of trying to look for the next thing. And it's not really clear what that, what that is yet. to get these sort of weird off-chain shenanigans or like BAP did some collab with BORAPE and they got panned very aggressively on social media

just like universally. They're like, no one wants this crap. And so, you know, everyone's trying to figure out what the next business model is for these things. And it's like really... What would be your advice to a struggling NFT founder who's going through the valley of darkness right now? Everyone here has to give one cone of wisdom.

Each person. One colon of wisdom? Yes. One molecule? of wisdom? There's not enough brain cells that exist in NFT buyers. So, like, we don't have that much to give. Okay. All right. Tom, you're up first. Give us your advice. I mean, obviously, a lot of NFT founders are looking to become media businesses or, you know, merchandise businesses or fashion businesses or whatever. I think the downside there is that, you know, these are not,

tend to not be amazing businesses based on like multiples or margins. And so, Yeah, you can go sell plushies, but like, you know, they don't have the same kind of great union economics that selling NFTs do. And so I think ultimately in my mind, like doing primary sales of NFTs and doing Mints is like kind of the best business model ever. And everything else is almost sort of a loss leader into doing that all the events and all the media and all the stuff you do around the community. And so if you can figure out a way to do sort of sustainable primary issuance and Mints are

actually still reasonably healthy, but they just are not the sort of 10K PFP drops that they used to be. I think that's like an amazing model. I mean, that's kind of the model that like most sort of luxury goods, you know, go down where it's like, yeah, we'll do, you know, some some press around our new watch. But ultimately it's about these limited, you know, drops. And that's sort of how you make your money. It's like through this scarcity and everything else is just sort of supporting the buy pressure to allow you to do that. So that would be my kernel of wisdom. Okay. So do more like Azuki type new drops? I think Azuki, had the right idea. I mean, the execution was maybe off. But yeah, I mean, selling $40 million of

NFTs in a bare market and that's all profit, like that's incredible. So anything you can do to allow it to keep doing that is, I think it should be kind of the goal. That's almost like the lost leader versus the actual business model. Durun, what's your, what's your advice to struggling NFT founder? I guess there's two angles to this that I would say that are worth looking at. The first is, well, let's consider Bernard Arnau. So Bernard Arnaud, founder of LVMH, we have a tonne at Hennessy. Their name already portends where most of the value came from, which was aggregating a bunch of luxury brands, some struggling, some not, into one house, finding economies of scale

for them, and then maximizing distribution. There's a sense in which I wonder if the NFTs are too disaggregated and actually aggregating some of them, merging some of them, actually would be able to extract more value distribution-wise, would have a better chance of these media type of engagements. And I kind of think M&A and NFTs land, someone will be just as activist investors in public markets are the disaggregators, they always fight for people to split up or to return capital or whatever. There's always the people who are the aggregators and the private markets who like roll up a bunch of things and they're able to create more value. I think there's a huge opportunity.

and it's pure financial engineering. It's not necessarily making a new thing. Maybe it's actually literally just rolling them up together and sharing distribution. But I think there's a lot of like P-style tactics that are likely successful. I guess the second thing I would say is that the line between NFT mince and air drops and games is kind of like getting much more hazy lately. So if you think about how people are doing air drop farming right now, say for like ZK Singh, right, which doesn't have a token yet. People are putting in liquidity, doing actions in the chain because they expect to get an air drop later, right? And there's obviously the big Celestial air drop

this week, which really rewarded developers who contributed more than just users. And one interesting thing about that is like you're sort of making shitty mobile game dynamics in air drops where it's like, hey, there's some metric we're not telling you that we're using to decide what you get. and it depends on some number of actions and it's almost like a video game you have to try to do all those actions in time before the random payout comes out and the reason I bring this up is like

NFTs could be useful in this kind of blurred line between complicated air drop and crappy game and I think like there that's another space that people should explore so just two things aggregation, aggregative effects like some P.E. style roll-up stuff

and then be kind of play with the line between airdrops and games, because the line is getting blurrier. So, okay, I will say probably of the four of us, I am the least NFT literate. I don't feel like I know very much or spend very much time in this market. But here would be my two cents. I would take the opposite side of what Taruna is saying, is that I don't think roll up,

like rolling things up or financial engineering is going to save the NFT market. I think that's probably a fast path to nowhere. I think if you understand what you're selling, NFTs are on-chain luxury goods and how do you innovate in luxury goods? The answer is that you have to move with where people are going and with what makes people feel important and special. I think when the market was indexed onto royalties and everybody was trying to encourage more and more trading, that really works when the market is basically speculation. We're no longer in a speculative market. And that means that secondary volumes, trading volumes are down and they're going to stay down, because,

because the volatility just is not there to support this being a great way to just flip stuff and make a bunch of money very quickly. Now, in the world of luxury goods, that's pretty normal. You know, if you're buying expensive watches, if you're buying expensive wines, if you're buying expensive paintings, people are not doing it so that they can, you know, do quick flips. Like some people do it sometimes, and there are some assets that do that. But the vast majority of luxury goods, they don't move around as much. Actually, they're largely treated as stores of value. And you can kind of see that in that the floor prices for a lot of these assets for the blue chips. You know, they've gone down, but they have not gone down to zero.

gone down to, you know, thousands of dollars, but there's still thousands of dollars worth of JPEGs. And so I guess what I would encourage you to do is like the way you innovate in luxury goods is to keep moving. Like keep plumbing new areas, keep having new ideas. And like Tom was saying, you want to really think about this being fundamentally a primary business. You sell the NFT once, but you keep people coming back and you give them a reason to stay part of the club and to keep the club exclusive and exciting and novel and interesting. And maybe it also means that the people that are beyond just the crypto kind of core inner circle, right? It's possible that like, hey, who are the other big spenders who are,

their lives and identities are very much online, but they're maybe not crypto DGents, right? Crypto DGent just have less money now than they did two years ago. So it may well be that like, look, there are people who spend hundreds of thousands of dollars in mobile games playing something like Genshin Impact or playing, you know, whatever. There are other pockets where people have a lot of money online.

So if what you're fundamentally selling are online luxury goods, then I think you maybe have to bet on these people showing up in different places, but still being willing to signal with the kinds of assets and the kind of branding that they get from owning a really cool NFT. That's my two cents. That's it. Robert, I'll give you the last word given that you're probably the deepest on the NFTs. Yeah, I would just say, don't do what everyone else is.

I don't do what any of these guys said to do. No, no, no, if you're an NFTIP project, no more 10,000 PFPs, no more. more generic bullshit. Like, if every artist made the same type of art, no artist would have any fame or success. You know, art is all about breaking the mold and doing things that people haven't seen before and trying new things and getting weird with it. So I would say if you're an NFT project, like go wild, have some fun, do something crazy, do something radical, like reinvent yourself.

Just don't do something because you think that there's a playbook to do it. Run away from anything that you think is a playbook. I like that. I think it's a great note to end on. And if you do, Ping Robert, he will be the first in line to mint, your new, your radical new NFT. I'll at least, you know, hover my finger over the button. Great. And if any of our advice was useful to you and you start a company, don't forget to tweet at us.

100%. 100%. Okay. We got a wrap. We got a hard stop. Thank you, everybody. We'll see you all next week.