June 14, 2022

Supplying tools for the gold rush, and “the” metaverse

Welcome to the Block & Mortar newsletter! Every week, we bring you the top stories and our analysis on where business meets web3: blockchain, cryptocurrencies, NFTs, and metaverse. Brought to you by Scott Robbin and Q McCallum.

Picks and shovels

In the early days of an emerging technology, you're always looking for signs that this New Thing will really turn into something bigger. That it will become real. One such indicator is a large, growing investment in the sector.   Another is watching established companies reposition themselves to align with the New Thing.

(Remember the early-day internet boom, when companies hastily added an "e-" prefix or a ".com" suffix to their name?  And what about 2010, when every business suddenly claimed it was "doing big data?"  We're talking about that kind of repositioning…)

A third sign – more subtle, but perhaps more important – is an increase in the number of companies creating tools and infrastructure.  They're helping individual consumers and large brands stake their own claims in the new world.  One reason this is such an important indicator for an emerging technology is that it sends a message: "we think this gold rush will be so big, we know that we'll make a ton of money just selling the picks and shovels."  And as these tools pave the way for more people to participate, the New Thing grows.

Just this past week, we've seen three cases of companies building web3 infrastructure: 

First up, Fortnite parent Epic Games will welcome web3 games into its marketplace.  In our peer group, a couple of people have expressed disappointment that the first game, "Grit," is created by a third-party developer.  If you flip that around, though, you see this as Epic providing a platform for web3 game publishers.  

Second, Vietnam-based blockchain company Ancient8 has raised $6 million to build infrastructure for play-to-earn games or GameFi.  (Granted, not every GameFi experience is going according to plan.  Axie Infinity, which reportedly helped people in developing nations earn a reasonable wage, has taken a bit of a turn.  We'll see whether that spreads to other GameFi providers.)

Third, SaaS pioneer Salesforce is building an NFT marketplace. Their service will cater to businesses that plan to use NFTs as tickets or VIP memberships.  Which may be why they are playing up the security angle:

[Salesforce] will provide a more-secure service for its customers who want to create and release tokens. Sales can be hosted on a brand’s own site to convey legitimacy to shoppers while Salesforce handles back-end security, contract-writing and authentication.

If you squint just right, "Salesforce handles the authentication and smart contracts" looks very much like the Dot-Com era "[some company] handles your store's online shopping carts."   And "Epic hosts web3 games in its store" is a twist on "a web host handles server maintenance and DNS."  

With these three companies providing the lower technology layer of web3, customer-facing businesses can focus on matters specific to their service offerings.  We look forward to seeing more infrastructure providers smooth that on-ramp.

Things Are Currently Going Wrong™ 

We set a record, folks.  We had an entire issue of the Block & Mortar newsletter without the Things Go Wrong™ headline.  But it's back.  

Sort of. 

If you've been following the news, you will no doubt have seen that the DeFi space is having … a moment.  The price of Bitcoin keeps falling.  The Celsius exchange has suddenly halted all withdrawals.  And there are some other stories in motion as we type this.

There's too much going on to provide you the clear, concise explanations you've come to expect from us.  So we plan to cover this in some detail in next week's newsletter.  Assuming the dust has settled by that point.

A quick  DAO update 

In our previous newsletter, we mentioned a couple of interesting papers on the legal issues surrounding DAOs. 

One link we forgot to include is Paradigm's DAO Legal Entity Matrix, which provides some details above and beyond the paper they published a couple weeks back. 

If you are exploring DAOs, the aforementioned papers and the Legal Entity Matrix are well worth your time. 

One way of exploring the space

The term "hackathon" sometimes gets a bad rap.  It conjures images ("memories?") of a flurry of energy, throwaway apps, and no lasting solutions.

While such hackathons have no doubt taken place, we don't condemn the entire practice.  A hackathon can just as well be an exercise in exploring a space, developing use cases, and quickly prototyping ideas.  Participants ask "is [X] possible?" and then give it a go. So long as you think "proof of concept" instead of "polished, robust, professional-grade apps and services," this pans out.

In the recent Graph Hack 2022 event, fifty-seven teams came together for three days to build prototype blockchain apps.  Nine of them split a $25,000 prize from event sponsor Polygon.  You can check out the Polygon blog for more info about the winners, which are grouped into the categories "Open Track," "DeFi," "NFT," and "Public Goods."  

If you're anything like us, you want to understand blockchain use cases and see what's possible. That's a good reason to review the Twitter thread by Graph Protocol director Eva Beylin, which describes the apps in some detail

More excitement than a close game

Buying an NFT can be a person's first step into web3. It can also be the first experience in handling variable-priced assets.  Prices can rise, prices can fall, and there's no telling when any of that will happen. Nor is there any guarantee that one NFT collection will keep pace with any other.

If you've worked in the financial sector, you live and breathe these concepts.  But for the DeFi novice, these can be harsh, hard-learned lessons.  

Some buyers of NBA Top Shot NFTs are feeling this pain.  Prices for the sports memorabilia NFTs have seen wild swings – mostly, downward – and buyers attribute this to a variety of factors.  Everything from the company minting a large number of NFTs, to servers being overloaded, to the ways Top Shot is still trying to sort out how to enhance the overall experience.

This difference in interaction, visibility, and supply hasn’t gone unnoticed by collectors. “So kind of the core of NFTs and collecting is you’re trusting the company or the creator to keep scarcity. And that’s what makes it appealing, right?” says [Top Shot buyer Jesse] Schwarz, who compared Top Shot unfavorably to Bored Ape Yacht Club in this respect. BAYC’s approach to building a community is “very calculated and still not outpacing the demand.”

The point about "not outpacing the demand" is key if your company plans to, say, mint NFTs intended as assets for collectors.  Such assets are more likely to hold their value if they're in short supply.  And if people think that you may grow the supply in the future, they'll be more nervous about buying and holding your NFTs.  

Somewhat related, BAYC parent Yuga Labs just closed off some code that would have allowed them to mint more Bored Ape NFTs.  In doing so, Yuga Labs has assured BAYC holders that they do indeed hold items of a finite collection. Scarcity, assured. 

We read this book before it was cool

There's plenty of debate as to what, precisely, is "the metaverse."  (This is even more hotly contested than "artificial intelligence," which should tell you something.)

The only widespread agreement we've seen is that no one company should be able to push their definition on everyone.  And, when people say this, they usually mean That Company in particular.  The one that changed its name to be more metaversey.  You know. 

Still, maybe some voices do get more of a vote?  Neal Stephenson, author of the 1992 cyberpunk novel Snow Crash, coined the term "metaverse."  So one could argue that any metaverse offerings should be sized up against Stephenson's vision.

Better yet, those companies will soon be able to compare their work to an actual implementation backed by Stephenson:

[Stephenson and Peter Vessenes] announced Wednesday they’re creating their own metaverse-focused blockchain called Lamina1. Vessenes will be the project’s CEO while Stephenson will serve as chairman.

Like the visions of the metaverse popularized in the summer of 2021, before much of the corporate world began co-opting the term, Lamina1 will be centered on open metaverses with a focus on virtual- and augmented-reality integrations.

If anyone gets to use the term "the" metaverse, it's him.

To us, this runs deeper than "the guy who coined the term is taking a stab at implementing the idea."  Stephenson clearly had something in mind when he came up with the metaverse concept thirty years ago.  The fact that he's having a run means that he thinks present-day technology stands a chance of matching his original vision.  (How many sci-fi authors find themselves in that position?  Very few, we reckon.)

We're excited to see how this turns out.  In the meantime, we'll be re-reading our old, dog-eared copies of Snow Crash.  And maybe we'll flip through The Diamond Age for good measure.

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Note: We’d like to thank Shane Glynn for reviewing early newsletter drafts. Any mistakes that remain are ours.