The NFT Ecosystem

The applications driving the NFT explosion

I trust anyone who is reading this has a decent understanding of NFTs. NFT stands for non-fungible token and it allows anyone to own, authenticate, and create scarcity to anything digital (art, music, videos, etc.). In the analog world, rare originals have always held inherent value. Think of the Mona Lisa or a copy the Gutenberg Bible. Anyone could buy a duplicate of the da Vinci painting or the 15th century book, but they would be worth a mere fraction of the originals. Until NFTs came around, it was very hard to apply this concept to digital goods. Now, what if I were to tell you that you could buy the certified first digital copy of a new Kanye West album? That would be worth much more than the millionth copy. NFTs allow you to do just that. But why all the hype around the ability to assign ownership and authenticity to digital goods? Not only can we do this for the first time cheaply and at scale using blockchains, but it also unlocks an entire ecosystem of applications that would be very hard to imagine just a couple of years ago. We’ve been investing in a lot of these applications, and to give you an idea of why we’re so excited about NFTs as a platform, I thought I’d explain some of these companies and how they unlock value.

Flow: Flow is a blockchain that makes it easy to build games and applications that leverage digital assets. This project comes from the team behind the massively successful collectible game CryptoKitties. From their experience building CryptoKitties on top of Ethereum, they found a handful of bottlenecks and limitations of the platform and incorporated those features into Flow, a blockchain purpose-built to support things like NFTs and large scale crypto games. Notably, Flow’s network uses an incredibly efficient proof of stake model, so minting an NFT on Flow takes less energy than a Google search or Instagram post. One of the most prolific products built on top of Flow is the digital collective card game NBA Top Shot. Built by the creators of Flow, these unique collectible videos that basketball fans can own have surpassed $900 million in volume on the secondary market. The success of NBA Top Shot has led numerous other content providers to sign deals to launch similar products, including the NFL, La Liga and UFC. Flow also powers RCRDSHP (electronic music collectibles), Dr. Seuss NFT collectibles, CNN NFTs, and international cricket NFTs. A handful of our own portfolio companies are also built on Flow, including Genies (digital avatar collectibles) and Eternal (streamer highlights).

OpenSea: OpenSea is the leading marketplace for buying and selling NFTs. OpenSea is basically the eBay for NFTs and is by far the leader in the space. If you want to start buying NFTs, OpenSea is where to do it. To give you an idea of scale, OpenSea’s trading volume in January was about $170M per day and over $5B for the month.

Coinvise: Coinvise is a platform for creating and managing social tokens for creators to engage more directly with their fanbase. We’ve seen a massive wave of NFTs, but one of the things that became more obvious to many creators was that these tokens can provide the ability to manage their communities and fanbases. Through Coinvise’s platform, creators design their own tokens depending on their thoughts regarding supply, vesting schedules, awards, direct interaction and exclusive content. Since the tokens are platform-agnostic and can be sent through social media channels, there is a very low barrier to entry. This ease of use should make social tokens a huge hit within the NFT ecosystem.

Eternal: Eternal is essentially NBA Top Shot for Twitch and YouTube. They currently work with the world’s biggest streamers and allow their fans to capture video moments and mint them as NFTs. With Eternal, moments go up in value as the streamer grows, rewarding early supporters. And as with most NFTs, whenever you trade your moments, a small percentage of the proceeds goes to the creator, further fueling their growth. Creators can also offer packs directly through Eternal, providing additional avenues of support for their fans.

Genies: Genies allows users and celebrities to create avatars and digital goods, and it provides a marketplace to exchange NFTs. This makes it possible to own iconic moments from culture through Wearable NFTs, with the added benefit of the digital items being supply constrained. For example, I can have my own avatar on Genies and buy the latest Travis Scott drop of digital shoes or visit a virtual Gucci fitting room. Celebrities can also use their Genies to interact with fans, like Justin Bieber did when he announced his Christmas album using his own Genie. This application is perfect for the Metaverse.

MomentRanks: MR is an NFT collection management and analytics platform. You can track all your NFTs and see their estimated value and join a fanbase for a given item. They currently track over 20,000 projects and have 200,000 MAUs actively managing their NFT portfolios. For all of you who used to trade baseball cards, MomentRanks is like the Beckett for NFTs.

NFTfi: NFTfi is a lending and borrowing protocol. They let you borrow money using your NFTs as collateral, allowing you to gain some liquidity without selling your NFT. For liquidity providers, they can earn attractive yields, and in case of defaults, they have a chance at obtaining NFTs at a steep discount compared to market prices. Creating lending and borrowing markets is just one of their applications. They are ultimately building a set of financial tools so you will eventually be able to buy into NFT ETFs, fractional NFTs, and more.

POAP: POAP is a Proof of Attendance protocol to bookmark key moments in time. These are tiny NFTs that you can earn for various things; whether that’s attending an event, buying a shoe from Adidas, or accomplishing an on-chain transaction. POAPs have been the de facto standard in crypto for verifying an action and they have plans to scale that issuance protocol to more use cases. Examples of how this works would be collecting a POAP for attending an Ethereum hackathon or going to your favorite band’s concert before they hit it big. By minting these memories on the blockchain, POAP enables verification like stamps on a Passport. They already have over 700K users today.

Highlight: Highlight allows creators to design a custom-branded community with a set number of memberships and unique rewards. Their biggest fans join by buying membership NFTs. Members get early and exclusive access to a private community, gated content, and benefits. Membership and benefits can be resold to fans outside the community, earning a revenue split for the creator. Over time, communities can grow by expanding tiers and rewarding early supporters.

Yield Guild Games: YGG is a marketplace for people to borrow and lend assets for various crypto native games allowing for mass-scale collaborative gameplay. These crypto games usually award users with NFTs and game-specific tokens for reaching different milestones. The tokens inherently have value and are often required to unlock new levels and features. YGG enables anyone to start a guild around their favorite games and use the Play to Earn model to pool resources and level up collectively. In total, YGG engaged with 47 games, DAOs and play-to-earn infrastructure partners in 2021.

Near: NEAR Protocol is a blockchain designed to provide the performance and UX to get to mainstream adoption of decentralized applications, including NFTs. One of the biggest criticisms of smart contract platforms is their inability to handle scale. NEAR can process somewhere in the order of 100,000 transactions per second and achieves transaction finality near-instantly thanks to a 1-second block cadence. NEAR provides developers with a range of modular components to help them fast track their development and get their projects off the ground quickly. Here’s an example of how NFTs would behave on the NEAR blockchain: every time an NFT is bought and sold, the creator can be notified and paid a commission – automatically. Furthermore, the NFT can be programmed to split revenue from the sale however the creator wants, say different percentages go to the artist, the artist’s agency, the artist’s union, charities, and previous owners of the NFT. This incentivizes everyone to help it retain value.

Hopefully these companies give a better idea as to why we’re so excited about NFTs and the ecosystem they create. It allows everyone the chance to own something that could hang in a virtual museum. But it’s not just about owning a rare digital asset. It’s also about borrowing and lending against your digital asset, allowing your favorite brands to unlock unique digital and physical experiences, facilitating interaction between creators and their fans with both participating in the upside, verifying attendance and purchases at events online and offline, and seamlessly trading digital goods in your favorite video games. All of these things would have been virtually impossible just a couple years ago. Now, these startups are making these opportunities a reality, and creating markets that we believe each represent a $10B+ opportunity.

Ronny Conway Founder & General Partner
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