One thought for the week 💭
NFTs - partially justified hype
[4 minute read]
Non-fungible tokens (NFTs) enable ownership of digital content. They have exploded in popularity over the past month.
In February alone:
Nyan Cat’s creator made ~$600,000
A single Hashmask sold for $650,000
Rare CryptoPunks are selling for over $1 million
A chunk of “land” in the game Axie Infinity fetched $1.5m.
I have previously written about how NFTs will become the property rights of the Metaverse. My hypothesis is that they will be an essential and enabling component of the Metaverse by facilitating ownership and portability of digital assets across virtual environments. This is where I see the ultimate long-term value of NFTs.
But the use-case that is blowing up right now is collecting and owning cool digital content. This is usually a JPEG or GIF, but it can be any digital content type (audio-visual, tweets, blog posts, 3D models). This content is then attached to a unique token, usually on Ethereum.
Should we buy into all of the hype around NFTs? Yes. At least partially.
Of course, individual purchases of NFTs involve a considerable amount of speculation. These purchases are also arguably more speculative than traditional art and collectibles due to a lack of historic data around supply/demand.However, underlying speculation, there is often something of functional value… and the functional value of NFTs is still significantly undervalued, in my view.
Here are two emerging use cases of NFTs that are particularly relevant to our focus on media and content at Supernode Global:
#1 - NFTs enable the ownership of virality
The motivations for owning digital collectibles and physical collectibles are the same - (i) owning something with symbolic value (ii) capitalising on future asset price growth.
In light of this, one feature of digital collectibles stands out as a major advantage relative to physical alternatives. Digital collectibles combine scarcity and abundance in a way that has never been possible. This enables digital collectibles to accumulate vast symbolic value in a relatively short period of time. For collectors, this is a highly desirable characteristic.
As Matthew Chaim perfectly articulates it: “By creating a rare 1 of 1 NFT that represents a potentially famous and ubiquitously consumed file, we open the doors to capturing the value of viral content. Not by necessarily monetising each instance that content is consumed, but by the value of that original NFT going up with the cultural significance of its associated art.”
Another analogy is that of the Mona Lisa.
Anyone can take a photo of the Mona Lisa. But they cannot claim ownership over the Mona Lisa. Nonetheless, the more people share their photographs of the Mona Lisa, the more the painting's cultural relevance continues to grow, and the more value the original painting has.
As stated above, people collect physical items like fine art or baseball cards because these items have strong symbolic value. Viral content like Nyan Cat and the first videos posted to vine have immense symbolic value. The accessibility and abundance of digital media enables these items to become ubiquitous in a fraction of the time that it would take physical goods to become widely known. NFTs add scarcity to these abundant goods. In this way, they enable viral sensations to become rare, and therefore collectible.
The physical collectibles market is estimated to be worth $370 billion. How many of these circles will be eaten up (or more likely replaced) by NFTs over the coming years? I don’t know. But my guess is quite a few. Given the size of this market, that’s a huge opportunity.
#2 - NFTs redefine the ownership model of digital media
NFTs enable the digitisation of content rights via tokenisation. Tokenisation creates new ways of working with IP that were previously impossible or too costly to develop. Specifically, blockchains can automate IP provenance, use tracking and rights management. In combination with smart contracts, this allows digital content to be:
Co-owned and co-governed
Traded on secondary markets
In other words, content creators can sell an ownership stake of their digital content directly to their fans. What’s more, the creator can continue to collect royalties each time the NFTs are resold via secondary transactions. This is a new and unexplored business model that has only been made possible because NFTs allow the royalty logic to be encoded into the media itself.
This model promises to create what Jesse Walden of Variant Fund calls Patronage+ - Patronage with the possibility of profit. This is a new and more refined form of crowdfunding.
It is already happening. In January, John Palmer raised $13k to publish an essay. Instead of publishing his work for free, or putting it behind a paywall, he did something in between: raising funds to produce a new essay in exchange for ownership of the work.
Unlike other patronage models, this form of crowdfunding is not pure altruism. Instead, patrons receive a stake in the success of the work. Here's how it works:
The essay exists as permanent, public data published via Mirror.
That essay is minted as an NFT on the new Zora protocol.
Backers can send ETH to the crowdfund in exchange for $ESSAY tokens.
When the NFT is sold, the ETH in the contract increases
$ESSAY tokens can be bought and sold like any other ERC-20 token, or redeemed for underlying ETH.
Participants in the initial crowdfund will be embedded in the essay forever, as the supporters who made it possible.
A similar model has also been explored in music licensing. Last week, an NFT of an audio-visual file by electronic musician Jacques Greene sold on Foundation for 13ETH — over $23,000 US. However, the NFT represented more than just the content. It also contained the publishing rights to the song upon its release, in perpetuity.
These examples represent exciting new ownership models of digital content. This is likely to place more power and wealth in the hands of the creators (and their fans). Moreover, these emergent business models create totally new incentivisation structures for content creators. This is likely to lead to a proliferation of new forms of media - different to the content that we are used to today, which is optimised for subscription or advertising-based monetisation.
I for one am very excited to see what comes next!
News from this week 🗞
Efuse has raised $6 million for its “LinkedIn for gamers” platform, which helps esports amateurs and gamers find jobs and a sustainable way of life. The Ohio-based company signed up more than 500,000 new users to its platform in the past year. Link
Beamable has raised $5 million in funding to fuel its new business of providing a live services platform for game developers. Beamable has pivoted quite significantly from its previous incarnation as a studio based on IP rich shows like Game of Thrones and Star Trek. Link
BebopBee a game studio focused on match-3 puzzle games, has raised $2 million in funding. Former TinyCo, Zynga, and Jam City veterans Rajeev Nagpal, Cristian Zanier, and Anton Vikharev started the Fremont, California-based company. Link
Podimo, the Copenhagen-founded subscription service for short form audio stories and podcasts, has raised an additional €11.2 million in funding. Founded in 2019, Podimo is a podcast and short-form audio platform which offers personalized recommendations to listeners, while offering creators a share of revenue via premium subscriptions. Premium members gain access to more than 600 shows that are exclusive to Podimo and membership fees are shared directly with the podcast creators they listen to each month. The service is currently live in Germany, Denmark and various Spanish-speaking markets. Link
Praxis Labs—a virtual reality-based diversity and inclusion learning platform designed to redefine work cultures—announced that it raised a $3.2 million seed round. The company aims to expand the way clients train employees on and measure diversity and inclusion (D&I) through research-backed VR experiences. This also marks the official launch of the platform which has been in beta the past year with clients including eBay, Amazon, Google, Uber and Target. Link
Dating app Snack raises $3.5m in funding. Snack is looking to merge the popularity and format of TikTok with the dating world. It is a video-first dating app that asks users to create a video and post it to a feed. Other users can scroll through a feed (à la Instagram) rather than swipe right or left on individual profiles, and when someone likes a video, it opens up the ability to comment. Once two users have liked each others’ videos, DMs are open. Link
Hopin (founded in mid-2019) is reportedly on track to raise roughly $400 million at a pre-money valuation of $5 billion for its Series C. The two names out in front, likely part of a joint ticket, are thought to be Andreessen Horowitz and General Catalyst. Link
Hubilo, a platform that helps businesses of all sizes host virtual and hybrid events and gain access to real-time data and analytics, has raised $23.5 million in a Series A round led by Lightspeed Venture Partners. The round saw participation from the U.K.’s Balderton Capital and Microsoft chair John W. Thompson, among other angel investors. Link
Adtech platform VidMob has raised $50m in a Series C funding round that included investment from the likes of Adobe and Shutterstock. This takes the total it has raised across rounds to almost $100m. Link
Wellness and fitness coaching app, actio has extended its seed round to €10 million with a new investment from fellow Berlin-based venture capital firm Heal Capital. The startup secured a seed funding of €8.5 million from HV Capital and Cavalry Ventures in December 2020. Once signed up, users can access live fitness classes, training plans and coaching via the app. Offering short 15-minute classes, the in-app sessions vary from yoga and mindfulness to nutrition, creativity and fitness, as well as 'Happiness Journaling'. Link
Yuanfudao a China-based online tutoring platform, is raising "at least" $1 billion at a valuation of more than $20 billion, according to Bloomberg. China’s edtech firms are replenishing their war chests after splashing out hundreds of millions to grow their operations during 2020’s pandemic lockdowns. The country’s online education startups attracted a total of $9.2 billion last year, more than quadruple the funds raised in 2019, according to research firm Zero2IPO Group. Link
Dispo, a retro photo-sharing app co-founded by YouTube star David Dobrik, recently raised $20 million in Series A funding led by Spark Capital at a valuation of about $200 million. The company declined to comment. Link
Reddit, which announced a $250 million Series E earlier this month, has added over $116 million to the financing event, upping the round’s most recent total to $367 million. The SEC filing shows that Reddit is aiming to raise up to $500 million in this capital raise. A Reddit spokesperson confirmed the news, saying that the new capital is from ”new and existing investors.” Link
3D model provider CGTrader has raised $9.5 million in a Series B funding led by Finnish VC fund Evli Growth Partners. Founded in 2011, CGTrader has become a significant 3D content provider — it even claims to be the world’s largest. In its marketplace are 1.1 million 3D models and 3.5 million 3D designers, which service 370,000 businesses including Nike, Microsoft, Made.com, Crate & Barrel and Staples. Link
Interesting data from this week 📈
Source: Visual Capitalist