Posts from digital collectibles

On Saturday, September 9th, the Gotham Gal and I arrived at JFK airport after an eight-hour flight from Paris. While waiting for our luggage, I got pushed a notification in my web3 wallet that there was an NFT drop underway that I could participate in. So I clicked on the link, signed the transaction, and nothing happened (or so I thought). So I tried again. Again nothing happened. Frustrated, I turned my attention to the luggage, retrieved it, got in a car, and headed home. On the way home, I tried again a few times to no avail.

It turns out that each of my failed attempts to mint an NFT was a scam that allowed a thief to eventually take 46 of my most valuable NFTs out of my wallet. I did not realize any of this until I woke the next morning to a text from a friend saying:

did your wallet get compromised? your NFTs from fredwilson.eth were transferred out and sold

That’s when I realized that all of the failed minting activities from the night before were actually me getting scammed.

For much of August, I along with a lot of NFT enthusiasts had been participating in something called “Onchain Summer” which was a rollout of the new Base layer two blockchain from Coinbase. Part of Onchain Summer was a daily NFT drop. You simply clicked on the link in the message in your web3 inbox and went and minted. It was fun and I collected some great NFTs that way.

The message I was scammed with looked exactly like those Onchain Summer messages but was not from the same sender. I should have noticed that but did not. Mistake number one.

The fact that I signed a transaction and nothing happened should have been a sign that something was wrong. Normally when you sign a minting transaction, a new NFT shows up in your wallet. When it did not, I should have sensed something was wrong. I did not. Mistake number two.

The fact that I was signing transactions in the same wallet where I keep my NFTs is also bad practice and I knew it. The best practice is to hold NFTs in a “vault” wallet where you never sign transactions and to have a separate “mint” wallet where you hold nothing but do all of your signing. Mistake number three.

What I was doing by signing those scam transactions was giving the thief access to a number of smart contracts that secured multiple NFTs that I owned. So even though I did not sign 46 scam transactions, the thief was able to take 46 NFTs.

Signing transactions is risky business and needs to be done carefully. I knew that but did not take the required care on the evening of September 9th.

This story has a happy ending. With the help of my USV colleague Nikhil, I have recovered 38 of the 46 NFTs that the thief took from me for a fairly modest sum. As I put it to a friend, it cost me between weeks and months of my personal ETH staking rewards. It was enough to sting and that’s good. It was a lesson that I learned the hard way and it was worth every ETH that it cost me to get them back.

There are a few NFTs that I am not going to try and get back, but I am still trying to buy back these two NFTs that the thief sold to others who are likely unaware that they are holding stolen goods:

Anticyclone #212 currently held by this wallet

WoW #8105 currently held by this wallet

If you recognize those wallets and know who holds those NFTs, I would appreciate an introduction so I can offer to buy them back at their cost.

I do want to thank everyone who sold me back my NFTs (including the thief who we bought quite a few from). Many people sold them back to me at their cost when they heard they were taken from me. I really appreciate that.

The advances in AI over the last year are mind-boggling. I attended a dinner this past week with USV portfolio founders and one who works in education told us that ChatGPT has effectively ended the essay as a way for teachers to assess student progress. It will be easier for a student to prompt ChatGPT to write the essay than to write it themselves.

It is not just language models that are making huge advances. AIs can produce incredible audio and video as well. I am certain that an AI can produce a podcast or video of me saying something I did not say and would not say. I haven’t seen it yet, but it is inevitable.

So what do we do about this world we are living in where content can be created by machines and ascribed to us?

I think we will need to sign everything to signify its validity. When I say sign, I am thinking cryptographically signed, like you sign a transaction in your web3 wallet.

I post my blogs at AVC.com and also at AVC.Mirror.xyz which is a web3 blogging platform that allows me to sign my posts and store them on-chain. This is an attestation at the end of last week’s blog post.

You can see that “author address” and click on it to see that it is one of the various web3 addresses I own/control. That signifies that it was me who posted the blog. It is also stored on-chain on the Arweave blockchain so that the content exists independently of the blogging platform. That is also important to me.

I think AI and Web3 are two sides of the same coin. As machines increasingly do the work that humans used to do, we will need tools to manage our identity and our humanity. Web3 is producing those tools and some of us are already using them to write, tweet/cast, make and collect art, and do a host of other things that machines can also do. Web3 will be the human place to do these things when machines start corrupting the traditional places we do/did these things.

This post was co-written by Katie Haun and Fred Wilson

The events surrounding FTX have shaken the confidence of many. How did one of the largest crypto exchanges collapse so quickly? Why do meltdowns like this seem to keep happening?

At times like this, it helps to have a long-term view of web3 as a sector, not just a forward-looking long-term view, but also some perspective on where we have come from.

As longtime investors in web3 and board members (also individual shareholders) of Coinbase, one of the oldest and best-known companies in the space, we thought we might share some thoughts.

Web3 is a software-driven innovation that has a built-in financial system. This has been both a strength and a weakness. On the one hand, tokens enable developers and users to contribute to open-source protocols and participate in the economic upside of doing so, leading to strong developer communities. That’s been a positive relative to how software has been developed, monetized, and governed in the past. On the other hand, tokens lend themselves to boom/bust cycles and a sense by many that web3 is simply a speculative endeavor with no real substance behind it. 

This perception is only reinforced by the companies and individuals who started web3 companies and projects with the exclusive intent of making a lot of money very quickly through leveraged trading and speculation, pumping and dumping, and, sometimes, outright fraud.

Most of the well-known meltdowns in web3, going all the way back to Mt Gox and including recent failures like 3AC, Celsius, and Alameda/FTX, have happened to centralized companies operating trading, lending, and speculating businesses. Many of the failures have been offshore and all of them were largely unregulated. These companies and their activities have given web3 a bad name. We have also seen high-profile decentralized projects, like Terra, fail due to flawed design but those failures happen out in the open in a transparent way that is much healthier than the way centralized companies fail.

Contrast that with regulated web3 businesses like Coinbase, Kraken, and Anchorage that operate in the US and you will see that the companies that have followed the rules and behaved properly have weathered these storms. Coinbase’s early innovation was creating a secure, easy-to-use, regulated bridge from fiat currencies to crypto and a safe place to store crypto assets. Coinbase provides a number of important services that have allowed the web3 ecosystem to grow and thrive. 

The most important software innovation of the last decade, which started with the Bitcoin white paper fourteen years ago, is the emergence of open-source software and decentralized protocols that are the foundation of web3.  These protocols have survived recent market volatility. It is the promise of software that is not controlled by a company, but instead by an open-source community with built-in safeguards and increased transparency relative to today’s tech and financial systems, that gives us so much confidence in the future of web3.

These web3 protocols are in active development for mainstream adoption and some key features are still missing. For example, blockchains as they were originally architected are public by default. This is not suitable for most applications. Imagine if your email, banking, and social data were public for everyone to see on a blockchain. Also, blockchains are slow and complex networks. Improvements to performance, scalability, and privacy are happening at the infrastructure level of the web3 technology stack. Emergent technologies like zero-knowledge proofs and rollups are starting to address these issues without compromising decentralization. These breakthroughs are still in the early stages of deployment among a small subset of developers. This is the kind of important work that happens behind the scenes without any coverage. But it is these developments that are preparing web3 for the mainstream.

Eventually, as the web3 infrastructure improves, the user experience gap between self-custody and storing assets on centralized entities will shrink. More users will feel comfortable self custodying their assets in software they control and managing the keys that provide access to their assets themselves. This is how many web3 users interact with decentralized applications, like NFT marketplaces, today.

When web3 becomes a credible alternative to web2 for the masses, large centralized companies like Facebook, Apple, Amazon, and Google will have to compete for access to our data thus redefining how we use the web. Software development will be more open-source and composable. And large financial institutions like banks and brokerage firms (which includes the FTXs of the world) will no longer control our assets and lend them out without our permission.

Ironically, web3 is about giving control of data and assets back to the people and taking it away from large centralized companies. But the transition from web2 to web3 has been slow and messy and many of the early web3 companies have been copycat versions of what came before them. That is where the risk has been in the web3 ecosystem and what we need to move away from.

The lesson of these recent events for policymakers should not be that web3 is bad and must be constrained. It should be that pushing innovation offshore is bad. We need trusted and well-regulated centralized entities to survive and thrive and we also need decentralized web3 protocols to flourish and provide a path to a fully decentralized web. Both are possible and the good news is we are already on a path toward both. We need to stay that course, provide for a healthy web3 sector in the US, and stop pushing US users to risky/shady offshore entities with unclear, uneven, and unfair policy actions.

This is another hard moment for web3 and we will see negative headlines about “crypto” for some time. But it’s important to remember that these headlines are all about the speculating/trading part of web3. The much more important underlying software innovation continues unabated. And that is what we remain so excited about and will continue to fund and champion. 

This post was also shared on the Haun Ventures blog.

One of my favorite things about NFTs is that they contain a mechanism for the artist/creator to collect royalties on all of the sales that happen after the initial sale/mint. The creator specifies the royalty percentage when they initially mint the NFT and the NFT marketplaces/smart contracts collect the royalties on future sales and pay them to the creator.

Some forms of creativity have had ongoing economic participation by the creator for many years. In the music industry, there are publishing rights and recorded music rights that are paid to the creator and/or the creator’s financial partners (ie record labels and publishing houses). In the television industry, there are syndication rights. Many of the most successful musicians and television talent have made significant sums of money on these rights.

But for many forms of creativity, the ability to participate in the future value of the work has been absent.

So when I saw the NFT standard emerge, I was really excited about the potential for artists to participate as the value of their work escalates over time.

However, there are clouds on the horizon right now. Some NFT marketplaces have chosen not to enforce NFT creator royalties. There are some valid reasons for this and some not-so-valid reasons.

One valid reason is that “market makers” need very low transaction fees to provide liquidity to a market. A market maker is a participant that trades assets and does not hold them for long-term appreciation. They make money on the spread between where they buy and where they sell. These market makers ensure that there is always a bid on an asset that is being sold and an ask on an asset that is being purchased. Liquidity is essential for markets to work properly and so finding a way for market makers to avoid paying royalties is important. If a creator royalty is 20%, for example, a market maker would either need to underbid by 20% or overprice by 20% in order to break even. That’s not reasonable or feasible.

But there are also less valid reasons. Some newer NFT marketplaces are not enforcing royalties in order to take share from the larger more established NFT marketplaces. While one could argue that is the market working and competition is good for innovation, they are using the NFT creator as a “pawn” in this fight and that really sucks. The NFT creator’s only recourse is to “blacklist” certain NFT marketplaces that won’t enforce royalties and many are reluctant to take that step as it potentially reduces the interest in their work.

Yesterday, OpenSea, the largest established NFT marketplace, partially addressed this issue by announcing a “tool for on-chain enforcement of royalties for new collections.” This will allow NFT creators to require the collection of on-chain royalties when they mint new collections. It is not clear to me whether this tool will only work on OpenSea or if it will work across all NFT marketplaces. Obviously, the latter is the correct approach. OpenSea acknowledged that it does not yet have a good answer for existing NFT collections and is interested in hearing from “the community” on what to do about that.

Another important development in this area comes from USV’s portfolio company Uneven Labs which shipped the Forward Protocol a few weeks ago. The Forward Protocol allows NFT creators to specify that market makers/liquidity providers will not pay royalties on their assets but collectors/long-term holders will. This seems like an incredibly sensible approach and one that the creators and NFT marketplaces should adopt.

Here’s the bottom line for me. A critical part of the NFT innovation is the ability for creators to specify a royalty rate on their work and have it collected in the secondary marketplaces. This is every bit as important an innovation as on-chain art and everything else that comes from the NFT standard. Everyone in the NFT world; creators, marketplaces, collectors, market makers, etc, etc should insist that creator royalties remain a fundamental aspect of NFTs and do whatever is necessary to ensure that happens.

I have enjoyed collecting NFT art over the last few years and I have very much wanted to display it in a physical space vs just having it online on a profile, like this one.

So when we started designing the new USV offices last year we started thinking about NFT screens. We were inspired by these amazing NFT screens in the Bright Moments NFT Gallery in Venice Beach California.

So we bought six large displays for the new USV office, three portrait orientation like the photo above and three landscape orientation and hung them around the new USV office. Here are a few photos I’ve taken of the USV NFT screens over the last few months:

Here is how we manage the screens:

We bought Yodecks, one for each screen. A Yodeck is a raspberry pi-based inexpensive device made for the digital signage market but works great as an NFT player.

There is a web app to manage the Yodecks and you can put all kinds of media onto the device. We chose to make a simple web app that runs a playlist of NFTs on each screen and shows the artist, title, and owner on the bottom left and a QR code to view/buy/etc the NFT on the bottom right.

We curate NFTs into a Google Sheet, we use a script to construct a web page playlist from that curated list, and the Yodeck runs the playlist.

It is really simple and works great.

I recommend the larger (4GB) memory Yodecks for displaying rich media NFTs. I also recommend auto refreshing the web app in the Yodeck interface with some frequency to avoid crashed web pages blanking the screens.

My partner Nick wrote the simple web app and we’ve had a lot of fun getting it working well in our office and curating the playlists. Anyone who can fill out a Google Sheet can curate a playlist in our office. So everyone can and does.

Here is the GitHub repository for the web app that Nick wrote.

If you collect NFTs and want to display them in your home, office, gallery, store, or somewhere else, I highly recommend doing some version of what we’ve done. It’s great to showcase digital art on large format screens.

I have written about all of these things here at AVC before. But I am writing again as there is likely to be a bunch of chatter about Dapper, Flow, and NBA Top Shot as the news of a financing round comes out today.

Financings don’t really interest me but companies do. And this is a fascinating company.

Dapper Labs came out of an incubator called Axiom Zen back in 2017. The Axiom Zen team was looking at interesting things they could build using Ethereum. They contributed to the ERC 721 standard for non-fungible tokens and started building an NFT collectible game that became Cryptokitties. That got our attention and led to a financing that spun out the team and Cryptokitties into Dapper Labs. I wrote a short post on the USV blog announcing that we had invested in Cryptokitties, but in truth, we invested in much more. We are only seeing the entire vision now.

After building a few more collectible experiences on Ethereum, the Dapper Labs team concluded that the NFT experiences they wanted to create needed a different blockchain and they started building Flow. Flow is a proof of stake blockchain that was designed from the ground up for consumer experiences that require scale and performance and more.

And then they started building NBA Top Shot on Flow. That required a deal with the NBA which they made happen a few years ago. And it required Flow to launch. And it required a crypto wallet experience that was tightly integrated into the game that allowed new users to fund their wallets with credit cards in addition to crypto assets. Building all of that was quite a task but they got it all done by the middle of last year and launched NBA Top Shot into beta last summer.

Slowly but surely Dapper let more users into NBA Top Shot and iterated on the experience and by the end of the year, they had a hit on their hands. Hundreds of millions of dollars of transactions a month happen between collectors on NBA Top Shot. Pack drops sell out more or less instantly.

The success of NBA Top Shot has led many developers to Flow seeking to build additional collectible experiences and I expect that we will see many more great games and experiences on Flow in the coming months and years.

It is rare in the crypto sector to find a team that has successfully launched a blockchain, a wallet, and a number of popular applications. The Dapper team has done all of that and I am excited to watch what they do next.

There are these news moments that we remember vividly forever. The plane flying into the World Trade Center. The mob breaking into the Capitol. Reagan at the Berlin Wall. Just writing the words, I can see the images in my head.

Our portfolio company Recount Media is all about these moments. Recount captures them quickly and concisely and shares them on social media and other digital platforms so that the world can see what is going on around them.

Today, they are trying an experiment that I am quite interested in. They have taken one of their most-viewed news moments, one they published exactly one year ago today, and they have minted it into a one-of-a-kind digital news moment and are offering anyone the opportunity to own it.

The auction is going on here and I just placed a bid. My goal is not to win this auction, although it is possible that I could. If I do, I will contribute it to a DAO that would allow group ownership.

Recount explains why they are experimenting with NFTs here. I particularly like this line:

So as we approached the one-year anniversary of the Calendar, our first runaway viral video, we thought it would be fun to celebrate that breakthrough in a manner that itself is an expression of our relentless aspiration to rethink how journalism works — its form, function, and economics — in this moment of intense fluidity and flux in digital media.

One of the challenges with digital media is the limited business models available to news organizations. You either sell ads or subscriptions, or both.

Who knows whether minting news moments can help stimulate new business models, but it sure can’t hurt to try. Sticking to the old ways of sharing the news and making a business out of it is not interesting to me. Coming up with new ways of sharing the news and making a business out of it very much is.

The NBA is back in business. Our family watched a ton of basketball over the long weekend including the Knicks huge win over the Bucks last night. It’s great to have my favorite sport back in action after a short layoff.

Also back in action is NBA Top Shot, the digital trading card game from the NBA and our portfolio company Dapper Labs. New packs will be dropped in the new year featuring all stars, rookies, and more.

But you can shop right now in the marketplace and buy cards from other players.

The trading opportunities in NBA Top Shot are exciting. I have purchased 11 packs since the game launched, for about $250 in cash and crypto. I have sold a few cards and now hold 61 “moments” that are estimated to be worth about $2800.

That estimate comes from a third-party app called Intangible Market that allows crypto collectors to estimate the value of their collections.

Intangible Market is an example of why building games and other experiences on crypto blockchains is so exciting. It means that others can build on top of your work and make it even more fun and interesting to use and play.

Crypto has a built in business model, tokens, that means that these platforms can be open to everyone to build on and enhance and evolve. That is radically different from the web and mobile ecosystems of the last twenty-five years and why developing on crypto is such an exciting and wide open opportunity right now.

Earlier this week I purchased 1% of a collection of five 1985 Nike Air Jordan sneakers using our portfolio company Otis’ mobile app.

I paid $330 for ten shares (out of a total of 1000 shares) implying a value of $33,000 for the five pairs, or roughly $6600 each.

This page shows the highlights of this sale, including a video, a link to the investment deck, and a link to the offering circular.

The Air Jordans offering sold out quickly but luckily I got a push notification on my phone alerting me to the “drop” and I was able to secure an interest in the collection in less than a minute. It was a lot of fun to do. I have bought interests in nine collectibles via the Otis app over the last few months.

The idea of breaking up collectibles into small interests and creating/making a market in them is a very interesting idea. It allows people who appreciate these items and understand their value to participate in the appreciation without having to be super wealthy. I like that very much.

I also like that Otis is a “crypto adjacent” business. Our friend Jesse Walden coined that term and I really love it. It suggests that there are non-crypto based applications, like Otis, that will deliver on some of the promises of crypto and prime the pump for what a fully crypto-based application can do for us. Otis could have been built on a blockchain and these security interests in Air Jordans could trade on a blockchain, but that is not how it works today. It may go there in the future. But regardless, we are starting to see how technologies like crypto can open up a market to everyone, or at least a lot more people, and that is very exciting to me.