📺 SotN #38: The State of NFTs with Andrew Steinwold

hey everyone bankless nation welcome to another episode of state of the nation we are super excited to have you here on the docket today we are talking about the state of nfts they've been everywhere lately they've been hyped lately they've made major newspaper publications lately everyone is talking about nfts and we brought on andrew steinwald who is going to give us the state of nfts andrew is a guy who predicted nfts before they were a thing so we're going to dig into that david how you doing today man absolutely

fantastic still trying to get my head wrapped around nfts and i think the whole industry is we all are because so much has changed in the past like two to three months and a lot of bankless content around nfts lately has been uh going to the artists going to the people that weren't about crypto that weren't about ethereum but discovering nfts and they were like wow this is really cool and so we wanted to go to the artist and say hey why are nfts cool what do what do nfts mean to you now this is the opposite we are going to the guy who was paying attention to nfts before everyone

else was before they were hyped up and so i would call him he's at my personal expert on nfts and so he was also one of our two guests on the bankless episode the bowl case for nfts which i think we did back in september of 2020 uh and he made some very bold predictions that i thought were crazy back then one of them being that nfts will be like i think either a hundred to a thousand x times larger than d phi and i was like blasphemy but now i can actually start to see it now i can actually start you know it's it especially felt like blasphemy like

uh something way off the beaten path right after defy summer right in september when we were talking about the d5 had this explosive you know three or four months and here's andrew coming on talking about how big nfts were going to be and i remember andrew and jake talking about a trillion dollar market cap market opportunity it seems a lot more likely now so we are going to dig into that guys if this is your first state of the nation these usually come out on tuesdays where we're broadcasting it live on monday uh today

um because we needed to to accommodate schedules but we generally release it every tuesday this will also be on the podcast as well david before we get in we should do a couple of announcements first of all we've got the one confirmation podcast that just premiered today this is one of those podcasts i feel like it's 90 minutes of listing time but there's like a million dollars right in value inside of those 90 minutes it's one of those podcasts with investors where you're like wow this entire mental model is so beneficial to

how i invest in in the future that uh like the dividends of listening to it and absorbing the material are like more more than worth your time um there there were a number of i guess i guess phrases from that podcast but the theme of the episode was authenticity authentic projects authentic founders authentic data authentic data even and there's this this beautiful through line that throughout uh what else you want to say about that podcast to tease people and get people interested in it

right so my biggest takeaway was that um with ethereum with open blockchains where all information about the state of things is equally accessible by the whole world no longer is investing about how much better information can you get because everyone can get the same information now it's about how how much better can you interpret or digest that information and so that is a new that's a different paradigm that we now have to account for when we uh think about investing in this space

someone uh you know made the quip during that episode i won't say who you'll have to stay tuned to to find out that bitcoin is money for the institutions ether is money for the people that was hot which really stuck out on me so listen to that episode definitely a hot episode speaking of hot episodes we have drake returning the podcast the justin drake of course ethereum researcher and this time this is kind of a follow-up it's a sister episode to his previous crypto economics episode which really

focused more on the cryptography side of crypto economics and was insanely bullish for all sorts of interesting technical reasons i learned you know so much during that episode but this is almost the follow-up sister episode where we're actually talking about the economic piece the importance of ether as an asset in the future justin drake calls this ultrasound money david why should folks be excited about ultrasound money there is i think that ethereum history will be divided amongst many other ways to divide up something but in in one way

this way ethereum history will be before this episode drops and then it will be different after this episode wow that's this is dude the best podcast we have you're not over selling it i'm not overselling it this is the best podcast that i think has come out of the banquets podcast ever so far and you're you're totally right there's the economic side the cryptography side and then there's and there's the cryptography side and then there's the economic side in crypto economics uh and justin drake has figured out the best meme for ether the asset ever and i

think it will be the meme that lasts until the end of time wait wait better than triple point asset better than triple point asset i'm sorry to say this is you're really hyping this up david i like i just recorded it but you listened to it and you edited it so you got some extra hours and you're you're still feeling like this is going to be a fantastic episode coming away from this the number one episode this is this this episode will pivot the trajectory of ethereum for the rest of time oh my god all right well now i want to listen to

you let's see see how good it is it comes next monday guys so of course and you get that early early release date if you are a bankless premium subscriber so you can find out how to subscribe be a bagless premium member by clicking the link in the show notes all right david let's start with the question i ask you every single state of the nation what is the state of the nation today sir the state of the nation is reflecting we are reflecting as to all the crazy stuff that has happened over the last weeks and months particularly with nfts every

time some new wave comes in ethereum it's always an experimental wave defy summer massive summer long experiment in token issuance and yield and protocol design and now most most recently in the last two months we've had a new wave of nfts which have also been experiments no one knows what they're doing in d5 no one knows what they're doing in ethereum we're all figuring it out together and now that this nft mania has kind of gone on for two months now um i'm actually gonna ask andrew if he actually does

agree that this is a mania maybe that's not the right word but a lot of experiments have happened in the last two months now it's time to reflect what have we learned where has the trajectory gone differently than we expected or the same that we expected we're just integrating new information we are reflecting on the recent experiments of nfts that's a yeah well-timed episode i think because this is all going to be about sort of a summary of the capturing the state of nfts today with andrew and we'll get to that in a second one last thing before we cut to sponsors is

coindesk is having a consensus event that is their annual conference in may you've got like 11 hours i think from from the time that we're recording we're going live to get that at early bird discount ray dalia will be there why is ray dalio there has been a question is he interested in crypto hasn't been in the past but why is he attending a crypto conference i am definitely not going to miss that event so if you want it at a discount use the bankless code uh click the link in your show notes with that david we should thank the

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your grocery store or the coffee at your coffee shop go to monolith.xyz to sign up and get your monolith visa card today guys we are back with the state of nft's episode with andrew steinwald the perfect guest to have this episode with he is an investor at this uh fermion fund also he publishes the metaverse uh which is one of my favorite newsletters that cover the nft space

i've absolutely been dropping alpha since the early days he's also podcast episode leader on zema red actually zema red is the name of your newsletter andrew sorry not it's about the metaverse i should say um andrew it is so awesome to have you it's been a few months actually but like the first episode we had you on we wanted you to articulate the the bull case for uh nfts and that was back in september well my friend it seems like we are in a bull market for nfts do you feel sort of

validated with your your nft thesis because you were talking about nfts before they were a thing before they were cool before they were doing 70 million dollar art piece sales uh how are you feeling right now do you feel validated yeah so i'm feeling personally i feel weak because i just had a surgery last wednesday so that's why my voice i you know seem a bit pale and weak but besides that in terms of like mentally i'm on top of the world i think it's incredible that um to see the thesis play out in real time is amazing and to

kind of be writing about this and talking about it for quite some time now and to see it catch on to the wider mainstream audience is super super amazing i think it's incredible that um people are getting it's like it's almost like a trojan horse for crypto because people are like oh i i like art i like gaming i like collectibles whatever and those kind of simple use cases can bring people into crypto so they can learn about bitcoin they can learn about ethereum they can learn about defy and uh then they get access to this wider world that is just so revolutionary so um it's it's awesome to be honest it's

very busy um but no i'm very happy to see it play out and i still think um yes we are in a frenzied period right now but i still think that this is like just like defy we are in the very very very early stages of this that's going to be a multi-year kind of decade multi-decade kind of thesis play out for for this asset class uh andrea can i share something with you this is uh

you

you know a hundred percent like in no way did i anticipate mark cuban and chamoth to be going on cnbc in bloomberg talking about nfts in 2021 i i figured that would happen in like 20 24 or three four years down the down the line um but like it is blowing all my expectations uh completely out of the water from where we are today like when i first set up uh the funds um it's a fun fully focused on nfts uh we were at one to two million dollars in monthly trade volumes right um and two million dollars was a

big it was a major month for us and then you know to fast forward to today um to see in february we had 175 million dollars in one month that is like no nowhere on the horizon i thought it was going to take years one question i have okay give us those numbers again sorry we were dealing with an audio so 175 million this month is that we said so in february the monthly trade bond was 175 million when i first started which was you know september of 2019 so it was kind of a while back but one or two million dollars per month but

even in august of 2020 so pretty pretty you know pretty recently it was 2.5 million dollars per month was like the trade volume we were looking at so it just you know the past december january february has just been wild how do you account for this growth like what's happening yeah so it's it's kind of a layers of different factors but first of all traditional finance we're in a massive bowl cycle right you know stocks are all all-time highs uh crypto we're in a massive both cycle cryptos at

all-time highs um the crypto wealthy they're not really they're you know if they want to offload their ether btc position well well within the money they're not thinking okay i'm going to go buy a rolex and buy a house like they probably already have those things they're like i'm going to go flex i want to buy a punk you know crypto punk i'm gonna change my avatar to a cryptic punk and um you know like i wrote like i wrote for you guys it's like the new rolex is like a crypto punk and uh um i think that to have these assets that are part status symbol and part financial asset is really really appealing to a lot of people and then so that's kind of

like macro and and crypto micro but then also looking at the use cases in general they're super appealing to everyone so you know and i always do like the mom test so i'm always like hey mom like okay i've been talking about bitcoin since like 2013 and she's like i have no idea what you're talking about um but i say hey mom i can i can play a video game i can earn money or mom there's these collectible cards and they're like on the internet and you can trade them and make money and stuff like that and she's like oh okay like i i get that it's understandable like there's art and it's online it's digital right and she's like i get that so i think the use cases

are so appealing towards a broader audience not just this kind of crypto native crowd which is really important for for bringing on more people mom does not care about austrian economics if i know one thing about mom or or monetary theory eyes glaze over right but definitely the nft use case with with artists that mainstream knows in real life this is appealing um but you mentioned something in there about kind of the the status symbol and the the newly crypto wealthy is that are those the folks that are buying these like beeples for for 70 million

dollars and and these crypto punks and jack dorsey's you know was a 2.5 million dollar uh tweet as an nft is it is it is this coming from inside of crypto all of this all of this funding all of this cash is that where it's coming from or some also coming from outside definitely the the curators and the um the the artists and the creators are coming from outside crypto that much is clear to see but the demand is that still mostly inside of crypto yeah so there's certain levels so so the higher end you're

talking the hundreds of thousands to millions that buy range out of that price range it's mostly crypto natives and when you're talking the the lower range you know anywhere from like 20 bucks to you know a couple thousand that's more the kind of the newer people that don't have exposure um and what's interesting is that as these people basically the more time you get involved in the space the higher your conviction that's pretty much the same as in crypto and um and then you start to put down you know higher dollar amounts so maybe the new person starts with nba top shot and you spend 200 bucks on some packs

and they get excited maybe they can sell those for like a thousand dollars let's say and they're like oh what else is in this ecosystem they go to open c they check out like crypto parks they check out all this kind of stuff and then they get just further along the rabbit hole and eventually end up like you know farming like whatever d5 protocol like a couple months downline so um yeah it's that's the progression that i kind of see happening and in terms of the buyers it's kind of how i bifurcate them now it's like crypto uh you know wealthy are the high dollar amounts and then the new people are just kind of dipping their toes in now but getting involved quite

quickly so andrew you've uh had your own mental models about how this nft space will developing progress um and i want to get your gut take on the the last two to three months of nft progression and ask you if that if did that what is has what's happened in the last two to three months matched what you predicted would happen or or also what has really kind of changed the game or what was uh really something that's out of left field that you didn't see coming so so what did what would you say that you got right and you predicted and what was out

of left field or out of the blue or something that you didn't predict okay so what i think i got correct was that the reasons behind people getting involved in this market were accurate um they're multifaceted because nfps themselves are quite a diverse market you have collectibles game assets virtual land art uh other which is like all these other different categories um so you can be a gamer you can be a collector you can be an artist like whatever there's all these different appealing reasons to get involved and so that's been correct in the sense that

um it's very multifaceted and uh yeah it just goes back to being appealing to a broader audience versus um crypto which is often more focused on you know financial related applications or like trading or you know purely kind of making money which like an artist of course wants to make money but i don't see them like necessarily diving in the device head first i think they're going to get there but it's going to take some time um okay so and then what i got completely wrong was the time frame on which this would happen i think like you guys asked me in your podcast i think it

said uh you know how long will it take to reach a 20 market i think i said 10 years yeah yeah yeah and like and like i i really did believe i know i was like okay but it's a little bit a little bit too long but probably right and now it's like you know the total lifetime trade volume i think yesterday was at 450 mil yeah 430 mil um so you know that's just that's just crazy right um so trends happen so these are like monetizable memes essentially every

single nft is like it has some sort of virality or can have some sort of virality to it and because it's on the internet and memeable and has a financial aspect to it these things can grow way crazier than i anticipated and which is both good and bad i think it's good in the sense that um it'll help the wider adoption of the space but it's also not great in the sense that i don't want people to look at nfts as purely financial assets because they're not i think people you know should be if they want to buy a piece of art they should truly love the art they want to buy a

collectible that you truly love you know the soccer player that they're buying the collectible from or whatever right um i don't want them i don't want this to just be a pure financial game uh because if that's the case then that's it's not really fulfilling the mission of of the nft space andrew there may be more to dig into here but i just want to ask kind of your your gut take so uh david in the intro used the term mania and then he corrected himself and it was like well you know i wonder if andrew would characterize what's going on as a mania that's that's what i'm curious about too would you characterize what's

going on right now in the nft world as a as a mania yeah i think that it's it's highly speculative right now um but i think with every new technological paradigm we've seen this with crypto we've seen this with d5 we've seen this with dot com bubble speculative cycles are completely normal and and actually end up being kind of healthy for an emergent technologies because they bring in capital they bring in talent they bring in all this kind of added oomph to this space and make it really accelerate um a couple years ahead of where it probably would have been normally so i think that um we are

definitely in a mania but um that being said i think that's totally normal and okay and um and really uh yeah we've seen it happen before and it'll happen again in some other new thing whenever that that might happen um and i think i think it's okay i think overall um yeah so i will i will kind of step back slightly one thing i don't like is that low effort assets being produced by people that have learned about the space like yesterday um and and we see that a lot from famous people and i understand

like if you're the biggest fan of like rob gronkowski then totally like you can go splurge on the stuff but like you need to be thinking longer term and i get it's if it's the first son of tea and you just love the guy then like totally go at it but like i just don't right now you know what paris hilton has started following me on twitter right so it's like it's like you know sure she's awesome whatever but like i'm concerned about what is what is her what are her intentions in the space i feel like they're thinking more short-term cash not to call anyone out andrew but like lindsay lohan i don't know yeah putting the most effort into

uh bought her nft for something like 30 ether and burned it and just like sent it right to the burner dress so um you know that kind of that kind of like i think it's it's crazy like the most absurd move ever but um i respect it a little bit uh but like that's that's what like we kind of feel about it like we don't want these movie stars just coming in and making nfts and making all this money we want crypto natives people that have been in this space for a while that truly care and know about the space and and you know

have the same ideals and values as us to make stuff and then be successful that that's what i want i know a lot of other people want that as well because these people's fans like rob gronkowski his fans aren't crypto people his fans are nfl consumers right and so to the typical nfl consumer when they see something new that they didn't know existed before they're like oh this is a new thing that i didn't know existed before let me get in on this not realizing that they're actually getting in on an experiment right not actually realizing that this is something not just new to them but new to the whole

entire world that we are all trying to figure out together and just because rob gronkowski is issuing an nft doesn't mean that it is a finished product right or even the best product that it could be people people aren't used to like this frontier that is crypto and so they are thinking perhaps that it's more legitimate than it actually is or they just don't really know what they're getting into yeah i think if you're a fan of him or if you think that if you're confident that you know you'll make money on asset then sure like it's your money go go do whatever you want right but um yeah i just really

like i i want to see a follow-through from ideally if broadcasting was like hey guys like i'm going to now start my own nft series and this is good blah blah and like really put some you know effort like you know not even money-wise just like thought-wise into what he was doing then that i'd be like great he's that's awesome i'm happy um but again i just just think about are you happy holding on to an asset this specific kind of t two to three years down the line and i do think obviously i'm very biased but nfts are gonna be massive so in theory rob gronkowski's first nft would have

some sort of value but what about a second or third or his fourth i know it's and you know the difference andrew is like when um when when blah was on our podcast and he's kind of been in this from the early days and he was he was talking about issuing his own ffts and then he was listing out all of the various ways he was going to add value to the purchasers of those nfts and he went through and he he knew many of these um the folks who bought his nft by name he's talking about like backstage access collaborations with him right it was

very clear that he was looking to build a community and kind of grow from there and i don't get that sense from um some of the other you know creators of nfts who are who are entering um you know in a less intentional way uh and that that i think if you guys listen to the and listen to the blou conversation you'll you'll definitely see the difference there and in any mania you know people buy at the top like they buy at the wrong point in time and so

lots of lots of wealth can be made or at the late stages of mania lost and i wanted to ask about that andrew so we are in some kind of a mania the question is always like well you know what stage of the mania are we in and how long will it last do you have any takes on that yeah so i could be completely incorrect because if i could call the tops and bottoms of markets i would be like a billionaire but um so i think that nfts will be highly correlated with the broader crypto markets because a lot of these assets are denominated in ethio so um

yeah i i really think it's dependent on bitcoin ethereum and what they do um and also what's one interesting fact about nfts is that they're you know pretty illiquid comparatively to regular crypto and so it's it's it's easy to form bubbles it's hard to pop the bubbles it's easy because they're such a limited supply and these are unique goods so if someone you know someone famous or some really cool product launches with like a hundred nfts there's a thousand buyers like the prices can get really crazy quite quickly and then on the other hand if you want to quickly exit your position

it's very difficult because these are not you know you can't just go on unit swap or some exchange and get market sell and so um that's one very interesting aspect and i kind of liken it to the financial crisis of 0.708 where you know real estate prices had like pretty much only gone up ever since then and took a massive macro event in order to reduce the home prices across the board because these assets are less liquid and in my opinion that's kind of how i see nfts playing out in the short in this kind of cycle where until crypto

kind of has some major correction i don't see the nft mania or hype cycle being diminished by that much i think that's going to take a large macro event in order to kind of dampen dampen the spirits and dampen the dampen the fun so i guess back to the question of how long uh will the crypto market cycle last right which is which is kind of the other speculate speculative point here yeah what do you guys think on that i i i have a guess but what do you guys think nine months wow i think that's fast i think that's fast 10 months to a year david i'm a little nine nine

yeah nine to 18 months uh i'm shorter than both you guys what is your reasoning this well four year cycles plus a little bit more because of lengthening cycles and that's like kind of just a napkin math that i have um i do think that quote unquote this time is different in the sense that like this is crypto's mainstreaming cycle and so i am inclined to extend how long this cycle goes you know bitcoin can keep on pumping as long as the fed keeps on printing right and so kind of it's like no it's actually not crypto cycles it's it's a modern

monetary policy uh up to them to determine how long this cycle goes and i think that that could make it go for a lot longer than previous cycles my my framing is like um 2021 is is uh 2017 right and so we're in march of 2017 and it's going to play out roughly similar so nine months on us um maybe a bit more maybe a bit less yeah i could go with david's estimate um yeah what's your take so you think it would be shorter andrew yeah i think you guys both have very sound and logical reasons

for your estimates mine is is pretty similar in the sense but i just think it's going to be shorter but i'm always very optimistic at the same time very pessimistic it's very weird it's always like competing forces but i think it's got to be six months roughly um just because the pace of the acceleration has been faster than what i thought but then but then going back to uh 2017 when we were in april of 2017 i thought that i was like oh my gosh we are in the biggest bull market i've ever seen in my life because i was like i

bought ethereum and now i was going great like you know he's like um so yeah and i don't know these things always go way harder and faster than i thought than i you know think and then also david you mentioned uh the fed and the correlation between like how can bitcoin or or ethereum have a large correction if the fed's printing at every single like hiccup the traditional market does yeah it's it's it's gonna be really interesting to play out like we've never had a more bullish setup for cryptocurrencies ever so it's well i also feel like there's this there's this element of of uh differences this market

cycle too it's like defy already had a d5 summer right and it had that lasted three four months and now it's kind of recovering this could be at like nfc's sort of d5 summer event and then that could cool down but it could could like the the crypto bull market writ large could continue even after these these sub sort of markets um which is you know interesting to observe i had one last question on on kind of mania um what can we learn from the previous because nfts did have sort of a mania type event like

a micro mania if you will in 2017 and i'm curious what we can learn from the projects there so with cryptokitties which uh almost marked the top of the last mania and we had assets like um like crypto punks for instance right um and then we had all of these other assets that probably no one no one even remembers in the nft side of things and it seems to be the case that some of these things died away while others persisted and in fact became more valuable this this cycle at least crypto punk certainly did i'm not sure if

cryptokitties has recovered is there anything we can glean from the last market cycle and and kind of fit into this market cycle so if people are buying nfts for example and they're high quality nfts uh even if there is some sort of crash in the nft market is there some historical case for it for holding for the long run until the next time around when when these things uh pump in the next cycle yeah i think you can just look at the projects like that were around in 2017 early 2018 um you know let's let's go with uh