Tag: web3

• 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.

  2022.04.26

• 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

  2022.03.12

• 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

  2022.02.23

• Buying condos with crypto

  If you happen to have made boatloads of money in crypto (which sadly isn’t me), one sensible thing you could do is put some of that money into luxury residential real estate. You know, to diversify your portfolio.

  According to this recent WSJ article, it is already happening, with some developers and some homeowners now accepting cryptocurrencies in lieu of US dollars and other fiat currencies. This is helpful if you’ve managed to accumulate a bunch of crypto and don’t want to convert it. It can also be easier when it comes to moving the funds around:

  Avi Dabir, vice president of business development at FTX US, said he sees real estate as a growing sector for the company because crypto transactions are faster and more efficient than traditional deals, which rely on an often-cumbersome banking system.“If I want to send a wire transfer today using my traditional bank account, it’s got to be banking hours, I need to make sure I hit that wire cutoff time and I can’t do it on the weekends,” he said. “That’s not a problem with cryptocurrency. It’s open 24/7.”

  But of course it is still early days for crypto. The article suggests that most developers and owners are arranging for any crypto received to be immediately converted into US dollars at closing. This is presumably because of how volatile cryptocurrencies tend to be — at least right now.

  To accept crypto, PMG had to partner with a regulated exchange that could quickly convert crypto to U.S. dollars, then convince an escrow agent to accept down payments from the exchange, rather than directly from the developer. Mr. Shear said most escrow agents looked at him like he was crazy, but “20 lawyers, one year later, and a lot of brain damage, everybody got comfortable.”

  There are also tax considerations (that I am really not an expert on). If you bought $100 worth of Ethereum and it is now worth $10 million, you are responsible for paying tax on this gain if/when you sell, trade, or otherwise dispose of the crypto. And it is my understanding that if you were to use this $10 million in Ethereum to buy something like a condo in Miami, it would also be considered a taxable event.

  Maybe all of this becomes commonplace or maybe it doesn’t. But it sure is interesting to see crypto already starting to flow into hard assets like real estate.

  2022.02.01

• Protection against risk of expropriation

  

  Property rights, whether for real world things or for digital things, are the foundation of developed economies. Because if you don’t feel like your property is going to be safe and secure, why would you bother investing and trying to accumulate assets?

  Above is a chart I found, in this great thought piece by Ryan Goldman, showing the direct relationship between “protection against risk of expropriation” and GDP per capita. The more protection, the higher the GDP.

  This is, of course, fundamental to the way we live our lives offline. But it is also becoming increasingly important in the way we live our lives online. Because we now have digital assets that people actually care about owning and protecting. You know, like pictures of apes.

  This market is only going to continue to grow and the above relationship between rights and economic development will certainly hold true. But I think the big question is whether there will be more distributed and equitable access to opportunities in this emerging world.

  I hope that will be the case.

  2022.01.23

• Ownership and participation — what cities share with Web3

  

  Here’s a cogent argument by Dror Poleg about how urban economics can be used to explain the evolution of Web3, and also why it’s all a bit of a ponzi scheme, but that when it works, it works.

  His argument revolves around ownership and participation. If you own real estate in a city, you could say that you are both a part owner of said city and a participant. You participate by virtue of living and/or doing other things there, but beyond that you also have a vested interest in the city doing well. Because if the city continues to do well and grow, there should be more demand for real estate, including yours, and that likely means your wealth will increase over time.

  This same force could be said to apply when existing property owners oppose new development. It restricts supply and increases the value of people’s existing “ownership” in a city. It’s kind of like being a company and not issuing new shares so as to not dilute your existing shareholders.

  This connection between ownership and participation is similarly a hallmark of Web3. In the world of crypto, users buy tokens (some fungible and some non-fungible) and those tokens provide access and rights to various things.

  For example, owning tokens might allow you to vote on key decisions affecting the overall organization. And if the organization does well and continues to grow, all token holders should, in theory at least, see their wealth increase. More people will want those same tokens. Ownership and participation.

  Web2 companies, on the other hand, do not typically offer this automatic connection between ownership and participation. That is, of course, unless you’re a shareholder. If you’re just a regular user of a platform like Instagram (which I am), but you don’t own any shares in Meta (I do not), then you’re only a participant.

  If you happen to be a widely followed influencer then you can certainly benefit indirectly from the platform, but you do not benefit from any sort of direct ownership in the organization. Pretty much everything accrues to the house.

  In fact, you also don’t own your followers, from which you derive your indirect benefit. Not to pick on Meta, but if Meta decided that your content was suddenly inappropriate for the platform, perhaps too salacious, then it could choose to close you down and your indirect benefits.

  This, of course, is one of the great promises of crypto and Web3. If you’re a part owner and you have some say in the way things are being run, you can maybe avoid this kind of outcome. And if things really aren’t working out, one should have the flexibility to take their followers and be extra salacious somewhere else.

  We shall see if this is ultimately how Web3 plays out, but the connection between ownership and participation is an interesting one and, if things do end up working out as planned, maybe it can be harnessed to improve our cities. Because we know the problems: inequality, housing supply and affordability, and many others. The system is clearly far from perfect.

  Photo by Adrian Schwarz on Unsplash

  2022.01.21

• Is crypto just snake oil?

  As I understand it, databases are pretty important to technology companies. Here is an excerpt from a recent post by Albert Wenger talking about why he and his company (Union Square Ventures) believe that web3/crypto is going to unlock new value for our society:

  As a first approximation all the big powerful internet companies are really database providers. Facebook is a database of people’s profiles, their friend graphs and their status updates. Paypal is a database of people’s account balances. Amazon is a database of SKUs, payment credentials and purchase histories. Google is a database of web pages and query histories. Of course all of these companies have built a great deal more over time, but operating a database has stayed at the core of why they are powerful. Only they get to decide who has permission to read and write to this database and which parts of it they get access to.

  So how will web3 be any better? Well blockchains, at least right now, are poorer performing databases in almost all dimensions, according to Albert. And this is one of the reasons why they’re being so quickly dismissed by most people. But they do have one key advantage: permissionless data. No single entity controls a blockchain database. More from Albert:

  It is difficult to overstate how big an innovation this is. We went from not being able to do something at all to having a first working version. Again to be clear, I am not saying this will solve all problems. Of course it won’t. And it will even create new problems of its own. Still, permissionless data was a crucial missing piece – its absence resulted in a vast power concentration. As such Web3 can, if properly developed and with the right kind of regulation, provide a meaningful shift in power back to individuals and communities.

  All of this said, I do agree with Fred Wilson and others that the web3/crypto enthusiasts on Twitter these days are getting to be a bit much. For obvious reasons, everyone is trying to pump the crypto stuff that they own. And it can certainly feel like shills trying to sell snake oil. But as Fred pointed out today, this isn’t the first time that we’ve been here:

  It reminds me of the early days of web2 in 2001/2002/2003, when we started USV. That was also a time of great cynicism. We almost did not get our first fund raised. Nobody was buying the story we were telling. But of course, that story turned out to be true. And I am confident this one will too.

  If/when this story does turn out to be true — and I believe it’s a when — I think we will see it permeate through all sectors of the economy, including how we plan, build, and operate our cities. Of course, this will probably take decades and much of what will happen is unknowable right now. But it’s pretty hard to ignore that this was a pivotal year for the crypto space.

  2021.12.29

• Three steps to the future

  

  Each year, tech analyst Benedict Evans publishes a “big presentation” on the macro trends in the tech industry. This year’s presentation is now out (link here) and it’s called “Three Steps to the Future.” Not surprisingly, crypto, web3 and the metaverse feature prominently in his exploration of what tech might look like by 2030 (obligatory market cap chart shown above). But there’s also a lot about ecommerce, logistics, TV/content, and a number of other topics and industries. The back half is filled with some great charts and I think that many of you will find it interesting.

  2021.12.08

• Decentralization, centralization, and new frontiers

  In this recent post by Naval Ravikant, he argues that innovation seems to like two things: decentralization and a frontier. He starts by giving the examples of more decentralized states (i.e. smaller federal governments) and the Wild West. The American frontier was, as you know, wild. But it was also a place of great innovation.

  Naval then goes on to talk about the pendulum that tends to swing between centralization and decentralization. And in the world of technology, the last decade has been one of centralization (big companies). But this pendulum is much broader. Cities, as we have talked about before on this blog, are constantly in tension between centralizing and decentralizing forces.

  COVID was a powerful decentralizing force for cities. Everything was closed and we were all supposed to stay home. And so most/all of the benefits of centralizing in a city were suddenly, yet temporarily, turned off. Many people naturally decentralized. But when the dust finally settles, I highly doubt it will be as dramatic as most people initially thought.

  We know that cities and urban density encourage innovation. That’s why “unicorns” tend to overwhelmingly originate in big cities. But here’s the thing: this is a form of centralization. The fact that cities even exist in the first place tells us that their centralizing forces are winning out over the decentralizing ones.

  So how do we reconcile this with Naval’s argument that new frontiers and decentralization are actually what are needed for innovation? I agree wholeheartedly that one of the key innovations with crypto, for example, is that it is decentralized and permissionless. But what does this ultimately mean for cities and our built form?

  Does it encourage a similar sort of decentralization to happen? Or is the irony that decentralized technologies actually still thrive in centralized urban places? We may all be online buying NFTs, but we still want to get together in person to show them off and exchange ideas.

  2021.11.25

• Dwelling in peace

  

  

  

  These “aesthetic monsters” are part of a new NFT collection that I recently bought into. They’re called Angomon (supposedly “ango” translates from Japanese into “dwelling in peace”). And they can be purchased on the Magic Eden NFT marketplace. At the time of writing this post, the floor price is about 1.15 SOL.

  The ultimate plan is for these characters to live in some sort of 3D world that will be called the Angoverse (which is an obvious play on metaverse). The team is also planning to provide NFT holders with the original 3D files for these Angomon so that owners can 3D print their own real-world figurines. Longer term, the hope is that there will be official Angomon collectible figurines available for purchase.

  All of these things are of course future plans. They could happen or they could not. These NFTs could have tremendous value or they could not. I just thought these monsters looked cool and fashionable, and so I bought a few. Right now the plan is to frame them and display them all at Parkview Mountain House.

  But it is also interesting to note how go-to-market strategies are changing in this new world of crypto and web3. Fred Wilson recently wrote about this over on his blog. In web2 (think the Facebook/Instagram era), most consumer applications started out with a tool. The network came after.

  Chris Dixon called this strategy, “come for the tool, stay for the network.” In the case of Instagram, the tool was initially photo filters. People used it to apply those filters that made every photo look brown and hipster-like. But eventually network effects took over and that became more important. There are were lots of people using it.

  In web3, everything now seems to start with some kind of asset or token. People buy in and then become invested in the project, which is interesting because they then begin to market out of self-interest. This post is not about that and is more about sharing something that I think is cool.

  Fred Wilson has proposed a new slogan for this. It is: “come for the assets, stay for the experience.” So these Angomon are now assets of mine. If the experience does eventually come, I guess I’ll stick around. Hello web3.

  2021.11.24