Roham Gharegozlou's top insights on NFTs, NBA Top Shot & more | E1197

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Top Insights

CryptoKitties, Dapper Labs' first NFT project, was the successor to NBA Top Shot for several reasons:

• The ICO craze of 2016-2017 had undermined some of the credibility of blockchain projects, which meant it was near impossible to license any legitimate IP
• CryptoKitties served as a proof of concept for future NFT projects

NBA Top Shot is a hybrid of three things that capture fans attention:

1. Highlights & social media
2. Pack opening & the gameplay experience (Top Shot game coming out later this year)
3. Tangible feeling of owning a piece of history

Dapper Labs started their venture into pro sports NFTs with the NBA because their leadership and fans are very tech-savvy, which made for easy adoption

• Dapper works with the NBA Players Association for active players' rights, and works with retired player 1-on-1 to secure their rights for future releases
• They take 5% of every transaction, a portion of which goes directly to Dapper Labs and a portion of which gets split between the NBA and NBAPA

Roham sees Dapper Labs as a platform business that will utilize blockchain transparency to empower developers to build on their infrastructure

Intro

Guest: Rohan Gharegozlou | @rohamg

• Co-Founder & CEO, Dapper Labs (March 2018-Present)
• Website: https://dapperlabs.com
• Roham's Venture Studio, Axiom Zen, founded in 2013, was his first main push into Blockchain-based applications.

"We always saw crypto or blockchain as more of an application platform than a database or a currency platform." - Roham Gharegozlou

• He worked on the NFT standard in the summer of 2017 and launched the game CryptoKitties in the fall of that year.
• It had immediate traction so he partnered with investors Fred Wilson of Union Square Ventures and Chris Dixon of a16z to form Dapper Labs and go after the larger NFT opportunity.

How CryptoKitties led to NBA Top Shot

• The NFT standard is a way to represent assets of the same particular category that are individually unique
• The idea for CryptoKitties arose because they couldn't license IP (logos, characters, players, etc.) from major brands as a crypto startup in 2017.
• The ICO craze had undermined some of the credibility of blockchain projects. So Roham and his team made CryptoKitties as a proof of concept.
• CryptoKitties reached 100k users on the platform, breeding and raising digital cats.

"We wanted to create our own IP, we played around with some different ideas. But you've been around long enough to know the first cool things that happened on the internet happened with cats."- Roham Gharegozlou

• Crypto funding methods decreased regulatory friction, which has good and bad consequences for financing companies.

"... there's hardly anything about venture capital that's perfect. And so any experimentation in alternative funding methods and reducing barriers for both entrepreneurs to get access to capital, as well as for investors of different kinds to get into new kinds of deals that they believe in, I support that. And of course, there's speculative mania that comes along with it."

-Roham on the ICO wave of 2017-2018

Understanding NBA Top Shot

NBA Top Shot is a hybrid of three things:

1. Highlights & social media
2. Pack opening & the gameplay experience (Top Shot game coming out later this year)
3. Tangible feeling of owning a piece of history

"It just happens to be that these are digital things rather than physical things. Which for entire generations of people at this point feels even more natural than having piles of things." - Roham Gharegozlou

• NBA leadership and fans are very tech-savvy, which made them a perfect partner for Dapper Labs' entrance into pro sports.
• It took a year to finalize the deal. It was helpful to have a year of CryptoKitties data to see that there was an enduring community beyond early speculative hype.
• Ethtereum had scalability issues for processing a large number of transactions, so the Dapper team decided to create their own platform Flow blockchain.
• Scalability issues = it costs too much to send CryptoKitties back and forth or breed them together. This is due to high "gas fees" which is the amount needed to pay to the Ethtereum network to process the transaction.
• So far, there are over 1 million registrations on NBA Top Shot and over 400K owners, and they've processed over $500M in transactions on the platform.
• Every modern video game is essentially a collector loop. Players open packs, get power-ups and character outfits.

How Top Shot Works

• Professional sports leagues already have solid rights management in place; they just had to meet with the players association and the league (30 owners).
• Active players work through the NBA Players Association
• Retired players have a 1 on 1 deal (all players in a clip need to sign - even if they're getting dunked on)
• The NBA has a dedicated team picking every video for Top Shot, and Dapper Labs wants that level of curation with future partners.
• As of April 9th, $40M in NBA Top Shot Packs have been sold with $500M in secondary sales.
• The marketplace fee for resale is 5% which goes to Dapper Labs then is split with the league and players.
• This creates a "perpetual royalty" opportunity for players, which is only made administratively possible from everything being auditable on the blockchain.
• When someone buys a Top Shot they have the right to resell that item, not to the likeness of the athlete themselves for other commercial purposes.
• Michael Jordan just participated in Dapper Labs' $305M+ round of funding
• So... will we see a Michael Jordan collection on Top Shot soon?

"No comment." - Roham Gharegozlou

NFT valuations

• Roham expects the Beeple Everydays artwork will trade for more in nominal dollars in 10 years
• Not all NFTs are the same:
• CryptoPunks has a Bitcoin-style limited supply, whereas Top Shot is more similar to trading cards
• Digital NFTs = supporting the artists + buying a stake in their future earnings
• NFT is really about authentic ownership
• Some NFT's can be commercialized (CryptoKitties can be commercialized up to $100K)

Building Flow, infrastructure development, & new platform paradigms

• Dapper Labs is profitable on NBA Top Shot alone and their expectations are high
• Dapper Labs is focused on a multi-decade mindset and build out the infrastructure
• They will be supporting developers building on Flow

"We're already a platform business, we hold more Flow tokens than we have dollars." - Roham Gharegozlou

• Dapper Labs wants to be a platform partner for all media companies and leagues to reach their communities rather than taking a top-down approach and defining how that interaction should look like
• They are building flagship applications like NBA Top Shot to show what is possible with Flow

"Facebook runs on open source software. But a developer can't just build on Facebook's data, it needs to use its APIs, etc. What blockchain allows is what we call open services, or composability, where the data lives out in the open. Anyone can build tooling on top of it, there's 30 plus products on Top Shot, some of them are venture funded, that take zero platform risk. We can't cut them off even if we wanted to, because it's both open-source code as well as open data." - Roham Gharegozlou

• Technically anyone can make an NBA Top Shot aftermarket application, but there are still IP legal hurdles for that, the "battle is fought at different parts of the stack."
• This paradigm pushes power away from the platforms and toward the creator and the customer
• Currently, the 5 largest companies on the NASDAQ make up the bulk of its market cap and can all be considered platform businesses
• Dapper Labs built its multi-billion dollar business on making a deal that's better for both sides of its users

"We don't think lock-in should be defensibility." - Roham Gharegozlou

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