Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

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Tag: crypto

  • It sounded stupid when I said it

    https://twitter.com/DocumentingBTC/status/1553901007964442624?s=20&t=gRvygaF5RVVcIY-d_IHHeQ

    Click here if you can’t see the embedded tweet above.

    This is your daily reminder that many/most of the things that are ubiquitous today were once difficult to explain and understand (in the above example it’s email and the internet). Once a new idea or technology becomes widely adopted, its inner workings and technical aspects tend to recede into the background.

    Most people, for instance, probably aren’t familiar with all of the various internet protocols and how they work. Could you explain the difference between TCP and IP and SMTP? If you can’t, it doesn’t matter. The various protocol layers of the internet now work behind the scenes to power our daily lives. And the innovation that continues to be built on top of them is getting increasingly more user friendly as time goes on.

    The same thing will happen with crypto, which is talked about today in much the same way as the above folks are talking about email and the internet. New ideas will continue to emerge and we will all start deriving more and more utility from it (beyond just NFT art). And at that point, most people will stop caring about how all the sausages are made. They’ll just like eating them.

    P.S. One of the nice things about blogging every day is that I’ll be able to look back on this post in ten years and see how right or wrong I was.

  • Happiness vs. satisfaction

    I have heard from some of you that you don’t like it when I write about crypto and NFTs. This personal blog is supposed to be largely about city building after all. So today I thought I would write about crypto and NFTs. More specifically, this podcast episode, which I watched last night.

    It’s with Marc Andreessen and Chris Dixon of the venture firm a16z, and it’s actually less about specific things like NFTs and more about the reinvention of the internet in general. Why I found it particularly interesting is that Marc co-invented the first widely-used web browser. Anyone remember Netscape?

    So he was around for what we are now calling web 1 and he is around for what we are today calling web 3. And there are lots of parallels between then and now. Similar to today with crypto, the early internet had lots of critics and lots of people who thought it was dumb and that it would never amount to much.

    Oops.

    Here are a few other thoughts and ideas from the podcast that I found interesting (some of them even relate to city building):

    • No matter how many times we have seen the same movie, humanity seems doomed to repeat the same mistakes when it comes to, among other things, embracing new ideas and innovations. I agree with Marc in that part of this is generational. Younger people are often more open to new ideas because they view it as a way for them to establish themselves and make their mark on the world. Whereas older people (established people) often view new ideas and change as a threat to their current position in the world.
    • Marc drops a number of books throughout the talk and one of them is The Mystery of Capital — Why Capitalism Succeeds in the West and Fails Everywhere Else. This is a well known book by Hernando De Soto and the big idea is that property ownership and property rights are really the fundamental ingredients in our modern world. People need to know that if they hold title and invest money into something, it’s not just going to get taken away by someone. And it is this underlying legal structure that has allowed people to leverage property into wealth.
    • This is a fascinating observation in its own right, but it also relates to crypto. Hear me out. Chris Dixon makes the argument in the episode that web1 democratized information (anyone can search for stuff), and that web2 democratized publishing (anyone can share stuff through platforms like Twitter or the blogging platform I’m writing on right now). He then goes on to argue that the promise of web3 and crypto is really to democratize ownership of the internet. Anyone can buy crypto tokens.
    • Why might this be a big deal? Well if property rights in our offline world are a fundamental ingredient to modern society, it seems logical to me that property rights in our digital world(s) might also be equally transformative. And this is precisely one of the things that blockchain technologies enable for the very first time.
    • Finally, on a mostly unrelated note, I liked Marc’s comparison of happiness vs. satisfaction in life. Happiness, he explains, is like getting an ice cream cone on a hot summer day. The first and second feel great, but after that you move on. Satisfaction on the other hand is enduring. It’s the feeling you get from working on something really challenging and then finally succeeding. And that’s exactly how I feel about real estate development. There are lots of shitty days and lots of grinding. But in the end, I do feel very satisfied.

  • Virtual sneakers to cutting-edge kicks

    Toronto’s Bata Shoe Museum has an exhibition on right now that is all about sneakers. It’s called Future Now: Virtual Sneakers to Cutting-Edge Kicks. I haven’t been to it yet, but it’s on the list. Because this is interesting to me for a few reasons.

    One, shoes are important and, as a general rule, I always wear them when I leave the house. Though there may have been some exceptions to this general rule.

    Two, sneakers are high fashion. Just look at everyone walking around Paris.

    And three, sneakers are such a great example of a clothing device that went from utility (we need to protect our feet) to fashion (we all have a desire to express our unique identities) to art collectible (yes, lots of people buy shoes that they never actually wear).

    So if you’re looking at stuff like NFTs and digital fashion and scratching your head as to why they have any value, sneakers are probably a good place to look to help you understand why many of us seem to have a need to collect things that help us define our sense of self.

    This is, of course, one of the reasons why Nike bought a digital shoe company.

    I suspect that the exhibition will be at least partially about this and at least partially about really cool 3D-printed shoes.

  • State of Crypto

    Everybody wishes that they bought companies like Amazon way back when they first went public, and then held them until today. If you did that, you would of course now be rich. But what would you have had to deal with along the way?

    Well, for one, you would have had to stomach an 80% decline in its share price when the dot-com bubble burst. And so while hindsight is always 20-20, do you really think that, faced with this cliff, you would have held on, not freaked out, and not sold? Yeah, who knows.

    Moving to today and the crypto space, the price of Ether is down 51% over the last 6 months. That’s not quite 80%, but 51% is still a big number, especially if you dumped all of your savings into it and/or borrowed money to do so.

    But does this decline really mean that crypto is rat poison?

    Last year when the market cap of crypto was rising, I believed that crypto had the potential to become the next big thing for the internet. And I still believe that today, which is why I continue to dollar cost average and why I continue to collect NFTs that I like.

    I may be wrong with the conviction I have (and this post will serve as permanent evidence of it), but it’s what I believe. And my conviction doesn’t depend on today’s price. It depends on what I think it could happen with crypto in the next 10 years.

    So with that, here is an interesting “State of Crypto” report that venture firm a16z just published. I think the key message here is that this is a longtime coming. And while it is still early days, momentum continues to grow. But of course, you should decide for yourself what you believe.

  • Tokenized real estate and public databases

    One of the ways that you can turn a traditional real estate company into more of a web3 company is talk about how you’re going to tokenize the ownership of real assets. But what does that even mean and how would it work?

    Here is one example that I recently discovered (but of course there are countless others and I’m not suggesting that you should use their product). Bricknest is a startup that is focused on buying vacation apartments in popular tourist destinations. They then split the ownership into 365 non-fungible tokens that live on the Solana blockchain.

    Each token is intended to correspond to a day. And so if you own 1 token, you own 1/365 of the asset and you get 1 day. You can choose to either use it yourself on this day, or rent it out and get the rental income sent directly to your crypto wallet. If you own all 365 tokens, then it would be similar to you just owning 100% of the asset.

    The obvious question is how is this different from, say, fractional ownership, which can be similarly found in high-demand vacation spots? And the dumb answer is that, well, tokens exist on a blockchain and fractional ownership shares do not. So I guess the real question is whether or not tokens will make this ownership model any different.

    There is a long history of trying to democratize the ownership of real estate. In fact, this was the general idea behind REITs when they were created in the 1960s. So again, we are back to the question of whether tokenization will be any different from what we already have.

    But I think that most people are asking this same question of crypto/web3 in general — why does all of this matter? And a big part of the problem is that crypto is generally hard to explain. One of the best explanations that I have come across is this one here by Albert Wenger.

    Simply put, most internet companies today can be thought of as large privately controlled databases. Instagram, for example, is a database of all of our photos (among other things). But because it’s Instagram’s database, they get to decide what can be done with it. And naturally they are going to do what it takes to maintain their economic moat.

    Blockchains are similarly databases. And right now they’re not particularly good databases. However, the key differences are that (1) they are public, (2) they are not controlled by a single entity, and (3) anyone can read and/or write to them. And so they directly attack the thing that gives many companies today their economic advantage.

    Does this mean that tokenized real estate is the future? Does it make a difference that rental contracts can be programmed into the blockchain so that distributions are automatic? It still feels too early to tell. But I do think that most people are underestimating how disruptive a seemingly small change like this might be.

  • Right-click, save as — world’s first Bored Ape restaurant opens in Long Beach

    The common criticism with NFT art is that it’s just a JPEG image. So why bother “owning” it when you can just right-click, save as? Who in their right mind would spend thousands, let alone hundreds of thousands on such a thing?

    But as I’ve argued before, this is missing the bigger picture and missing what this new technology has the potential to empower. Take for example, the new Bored & Hungry restaurant that opened up in Long Beach, California this past weekend (with lines down the block).

    It is being dubbed the world’s first Bored Ape Yacht Club restaurant, and here’s the backstory. Andy Nguyen is a successful food entrepreneur in southern California. And last month he spent US$267,000 on Bored Ape #6184 (yes, a JPEG).

    After doing this, he took to Twitter and asked: “Worst decision I’ve ever made or best idea of all time?” Of course, he clearly had a new business idea in mind.

    Fast forward to today and he now has a pop-up restaurant concept that is branded with his Bored Ape. And because the Bored Ape IP is very permissive, he is perfectly within his rights to do this. He can create whatever business he wants on the shoulders of his NFT, as can others with theirs.

    His restaurant is also accepting the new ApeCoin that is part of this NFT community, and if you yourself have a Bored Ape, you qualify for perks like free food. All you have to do is scan your crypto wallet. Digital asset ownership = real-life something.

    This to me is just one small example of the kind of new businesses that crypto and other digital assets might unlock. And I am sure that it’s the tip of the iceberg.

  • Shares vs. tokens

    Crypto tokens are kind of like shares in a company, or at least they can be pretty similar if one wants them to be. Here is an interesting post by Tomasz Tunguz comparing the two. More specifically, he looks at inflation and deflation for both kinds of assets. According to Tomasz’s numbers, the average annual change in share count for software companies is about +5% (see above chart). Though there are some notable exceptions, such as Apple, who are aggressively buying back shares and decreasing their counts.

    The median inflation rate for crypto tokens, on the other hand, is much higher. Based on the projects that Tomasz chose for his post, the median rate is about 25%. Given the age of most of these crypto tokens, this generally makes sense. Younger companies also tend to have higher inflation rates as they raise outside money and issue new shares to attract talent. But this is likely to change as the space matures. Those of you who are following closely, will know that Ether is set to become deflationary sometime later this year.

    But going beyond these inflationary and deflationary numbers, what is more interesting to me is how similar shares and tokens can be, but also how meaningfully different they can be at the same time. They are similar in that they represent some sort of value, they can be bought, sold, loaned and generally used to earn a yield, and they can be used for governance matters, among other things. Where they are the most different is that (1) we don’t really know how to value most tokens right now and (2) tokens can have utility.

    I am confident that (1) will change as the space evolves. It is still very early days and valuation methodologies will get figured out. (2) will also grow and evolve into things that are unimaginable today, but even right now you have the option of using your crypto tokens to buy things like NFTs. This option should, in theory, have some sort of value attached to it. Though nobody has any clue what these NFTs will be worth ten years from now and so it’s pretty easy to poke fun at JPEGs of Apes. But with some new NFT projects seeing over $52 million in trading volume in their first 30 days, my instinct is to learn as opposed to eschew.

    Not every crypto token will have enduring value, just like not every share in a company has enduring value. Some are worth a lot and some are worth nothing. At the end of the day, what matters is the underlying business or project or city that you are becoming a part owner of. And I can tell you that lots of exceedingly smart people are working on exactly this for the token space.

  • Who cares if there’s an NFT bubble?

    The Financial Times recently reported on “the great NFT sell-off” here in this article. Daily trading volumes on OpenSea, which is the largest NFT marketplace, are down 80% ($50M) from their high in February ($248M). Bored Ape Yacht Club, which is the most expensive NFT collection out there, has seen its average daily price come down by about a third (see above). Of course, they still remain extremely valuable NFTs. And a recent CryptoPunks auction was just pulled from Sotheby’s so that the owner could “HODL” until things recover.

    I don’t think any of this should surprise both NFT holders and the naysayers. This is a high-risk space and it is all very speculative. You can’t run a discounted cash flow (DCF) model on a Bored Ape and most other NFTs (though some might actually produce cash flow through, for example, secondary sale royalties). The more important point of all of this is that we are living through what many people believe is the creation of a new kind of internet. Cryptocurrencies are what underpin these new digital economies, but we are still figuring out how they will function and what their long-term business models will be.

    For me, this is an exciting thing to be a part of. I’m not a venture capitalist, but buying NFTs and doing other crypto things feels a bit like I am an amateur one. Holding ETH or SOL is similar to holding Canadian or US dollars (currencies that underpin economies). So what I am doing is using these currencies to put money into ventures (NFTs) that seem interesting. And to do that, you look at the art, the team behind the project, the roadmap, and how well they appear to be executing against that plan. Indeed, many of the most successful NFT projects are naturally run by teams who are constantly building and shipping.

    At the same time, I mentally write off every NFT I buy to $0 as soon as I purchase it. I am also limiting my total crypto allocation to between 5-10% of my non-real estate investments and buying with a scheduled dollar-cost averaging approach. So if this whole web3 thing went to zero tomorrow (which I firmly do not believe will be the case), my life would still go on. None of this is, of course, investment advice. Please do your own research and make your own decisions. But I can tell you that it is a lot of fun following and learning about what smart, creative, and entrepreneurial people are doing in this emerging space.

    If you’re interested in NFT photography, check out my global citizen collection on Foundation.

    Chart: Financial Times

  • Money as social construct

    In Matt Levine’s latest Money Stuff newsletter he talks about how money is really just a social construct. In his words, money is “a way to keep track of what society thinks you deserve in terms of goods and services.”

    But over the years, we have learned that it can be manipulated through the actions of central banks and other authorities. This, he argues, has become more obvious in the last 15 or so years. Which is one of the reasons why people continue to argue that cryptocurrencies are both a good thing and something we need more of.

    Crypto is neutral, or at least that is the intent. But at the same time, it too remains a social construct. Cryptocurrencies have value because that is what we have collectively decided to layer on top of their math-based blockchains — a global market cap of nearly $2 trillion.

    Ironically, the more value we ascribe to them the less neutral they are likely to become. Because the more they ingratiate themselves into mainstream society, the more likely they are to get regulated. But Matt’s overarching argument is that this is in fact a good thing.

    Monies exist through webs of interdependencies that generally keeps us all in check by encouraging “prosocial behavior.” So the fact that authorities can intervene, when needed, isn’t a bug, it is a feature. It means that when you clearly misbehave, the world can punish you by doing things like freezing your foreign reserves.

  • Hanging out in the metaverse

    I’ve only hung out in Decentraland a few times. One of the times was to check out a Deadmau5 concert, which was cool, though not quite the same as a live show. But I have no doubt that all of this is a big deal and that I’ll probably end up at another virtual concert at some point. JP Morgan, for example, just opened up a virtual banking lounge in Decentraland’s Metajuku district, called the Onyx Lounge. They also just released this new report talking about how the metaverse is probably a $1 trillion market opportunity (based on their projected yearly revenues).

    Here are some other figures. In 2019, about $54 billion was spent on virtual/digital goods. These are things like game skins. This is compared to $42 billion at movie theaters and $30 billion on recorded music. So things that are purely digital (and have a very low marginal cost) are already a huge deal and people are spending a lot of money on them. Last year, the market cap of NFTs also surpassed $40 billion. The naysayers will tell you that you can just “right-click, save as” instead of spending any crypto on NFT images, but clearly something broader is underway.

    JP Morgan is of the opinion that it is only a matter of time before the metaverse infiltrates every sector of the economy in some way, shape, or form. Would you agree?

    Image: Decrypt