It was about 20 years ago that some crazy company purchased the hotels.com domain for a whopping $11 million. Many observers called it ridiculous because what were you actually getting?  It’s just a web page. It’s virtual. It’s not “real”.  It turned out to be a pretty good investment. We mention this little anecdote because we hear similar things about NFTs and the Metaverse.  “There’s nothing there…it’s not real”. Total NFT sales volumes surpassed $1 million per month in May 2020. By August 2021, the volumes surpassed $1 billion. Another two months later, it was $2 billion. At some point we need to start following the money. Clearly there is something here and it’s actually not as big of a stretch as it might seem.  

The naysayers will ask are we really going to be strapped into our VR headset and living a virtual life akin to “Ready Player One”. It all seems so goofy, doesn’t it? Facebook is often the butt of my jokes for so many reasons, the latest being its Meta name change and accompanying promo video. Call me a jaded gen Xer, but what I see below is, at it’s best, something so hokey that it verges on satire and, at it’s worst, a sad dystopian future that I want no part of. In short, we don’t believe that Facebook is doing itself or the industry many favors by preaching a vision that resembles what “Back to the Future 2” predicted for 2015.

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Where We Stand

Don’t let Facebook’s VR-focused, Ready Player One vision cause you to throw the baby out with the bathwater. We are actually very excited by the Internet improvements likely to emerge under the banner of Metaverse innovations. Simply put, here is how we define the Metaverse. It’s like going from 2D point and click into a more immersive 3D virtual world. Something like the shift from Super MarioBros. 3 to Super Mario 64. The premise goes something like this. We are all spending a lot more time online thanks to Covid and the remote work migration. So can we have a better UX that improves our productivity and adds richness to our social encounters? Content consumption has evolved from text-rich static web pages with the first gen Internet to the current video/app/animation-heavy version that we’re accustomed to today. Whereas this current version was fine for a few hours per day, it left people cold as more of our waking life was devoted to the screen.  

As Covid was driving users online, another big factor was starting to emerge – mistrust in big tech. A group of trillion-dollar companies – Apple, Google, Facebook, andAmazon – have ridiculous power over the Internet and data, which has raised lots of issues related to privacy and fake news. Depending on the survey source, somewhere between 70-90% of US adults are concerned about how big tech is using their data and influencing the content that is being consumed. These factors push a band of innovators toward a more decentralized technology, called Blockchain.  

We were never all that high on the concept of Bitcoin currency but what it did spark was the Blockchain revolution. Blockchain has incredible potential and 2021was just the beginning.  Blockchain is like the Internet, a fundamental technology layer that allows countless applications to be built on top of it. But blockchain is potentially even more powerful because of the automatic intelligence built into it and the lack of central authorities to dictate how it all evolves. This automatic intelligence is called smart contracts, which we describe in detail below. But for now, think of smart contracts as if-then statements, which automatically trigger events when certain conditions are met. This is powerful because it minimizes the friction associated with human intervention and also raises transparency and trust in the network. It also scales like crazy, which is one reason why NFTs have so quickly exploded in popularity.  

Some readers are surely asking themselves, how much of this metaverse/NFT hype is a fad and how much has real staying power. Here is our take:

• NFTs – massive potential; just scratched the surface of where NFTs are headed
• VR – probably fad, at least in the near to midterm. Maybe in 20 years, we’ll all be wearing VR headsets but for now, I don’t see it
• Ethereum – absolutely critical to the wide spread adoption of cool new blockchain applications that we haven’t even considered yet; Ethereum 2.0 and the shift to proof of stake will be instrumental inextending Ethereum’s lead
• Bitcoin – we don’t really care; it might go up and it might go down just like the price of gold; heavily dependent on human psychology and nothing else
• DAOs – huge potential; we see DAOs emerging everywhere starting in 2022; an entirely new governance model based on transparency and fair voting will be taken to extremes; sure, there will be plenty of failures but we’re excited by where this could go
• Facebook’s metaverse and the like – we’re not enthused by Meta or similar concepts. Again, this might be the future in 20 years but there is a long way togo
• Community – super important; in fact, let’s devote a little more time to this

On the importance of community

One of the most important attributes of NFTs, metaverse and blockchain is the ease with which almost anyone can launch a new project or implement a new idea. Barriers to entry have been reduced to being almost negligible. It’s become really easy to launch a new blockchain application or an NFT. Even building an entire new virtual world can be done with a few million dollars. With so much supply of new blockchain projects, how does one raise the likelihood of success? The answer: with community and audiences. All of these projects only hold value if millions of people show up to play and engage and purchase. Nobody who enters Decentraland or plays Axie Infinity will marvel at the intrinsic beauty of the UI or gameplay. Do yourself a favour and try Roblox. Yes, I’m old but Roblox isn’t very impressive on the surface. What’s impressive is that millions of people are playing every day. In a messy new blockchain world where thousands of new games and applications and NFTs will launch every month, how do we determine who wins? The answer is who can build the community quickly, effectively, and economically. In the metaverse gold rush, the picks and shovels are going to be community and audience engagement. We encourage readers to keep an eye on this factor. Companies that wield these weapons most effectively will become the juggernauts of the 2020s.  

Now, let’s get to the meat and potatoes portion of this report.

Blockchain

The blockchain is a distributed ledger or database where by data is shared across multiple nodes in the network. The big innovation with blockchain was the idea of using decentralized peer validation to build trust without a third-party intermediary. How are transactions validated on the network? By sending complicated equations to various nodes on the network and having computers independently solve these equations to verify an authentic transaction. Once validated, the block gets posted to the public ledger and chained to all previous and up coming blocks. In this way, the transaction is permanent and cannot be altered. The first mainstream use of the blockchain concept was launched in 2009 with theBitcoin currency. After a few years, the blockchain concept was separated from the Bitcoin currency and blockchain 2.0was spawned. Blockchain 2.0 basically represents the evolution of blockchain beyond just currency.  

Ethereum

Ethereum is an open source blockchain that went live in2015. It was designed to facilitate a much broader group of applications by supporting smart contracts from the ground up. Smart contracts are fundamental to Ethereum applications because they digitize and automatically execute agreements when the required conditions have been met. Manual contracts require lawyers and interpretation and central authorities to enforce the conditions. Smart contracts are simple “if-then”statements that do not require interpretation or human intervention once the terms have been met.  

The cryptocurrency generated by Ethereum is called Ether(ETH). It is with ETH that all transaction fees and rewards are settled. A single ETH is currently worth about US$4,000 although the volatility tends to be quite high.

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A major upgrade to Ethereum 2.0 is underway, which will seethe blockchain transition to “proof-of-stake” validation from “proof-of-work”validation.  The primary driver is to increase transaction throughput on the network from the current 15 transactions per second to thousands of transactions per second. A second factor is the rapidly escalating“gas” prices for the Ethereum network.

ETH Gas

Ethereum transactions come with a cost because of the processing resources required to execute the code. This cost is termed “gas” fees. The gas fees will tend to fluctuate depending on the complexity of the transaction and the amount of capacity in the network. Gas fees are used to induce the nodes on the network to complete the work so placing orders at off-peak times is one way to mitigate high gas fees. The unit of measurement for ETH gas fees is Gwei or 10-9 ether. In the 2019/2020 period, gas prices were averaging about 10 to 20 Gwei but as demand began to surge, gas prices began to grow and fluctuate wildly. The current price is about 70 Gwei but is expected to decrease significantly as the blockchain shifts from PoW to PoS.

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Proof-of-stake vs. Proof-of-work

How do you build consensus on the blockchain to verify the legitimacy of transactions? Either through proof of work (PoW) or through proof of stake (PoS). PoW (often called mining) is the older technology and primarily in use by Bitcoin. It requires high powered computers to use vast processing power to answer the math equations and thereby validate the blockchain transactions. PoW has important limitations that drove the shift to alternative consensus mechanisms. The key limitation is the throughput. Bitcoin’s average speed is about 3 to 7transactions per second, which equates to about 10 minutes per validated block. This is simply too slow for any blockchain that aims to underpin a host of mainstream applications.  

This leads us to Proof of Stake (PoS). This consensus mechanism requires that entities called validators stake their own crypto in order to get the chance to process a transaction and thereby earn some additional tokens or coins. Validators with higher stakes and longer time on the network get improved odds to win the transaction. Ethereum 2.0 is expected to increase its throughput to about 100,000 transactions per second once the shift to PoS is completed.

Beyond all the technical stuff, the most interesting result in moving to PoS could be revenue driven. Anyone with crypto can stake their coins with a validator and passively earn some yield. Websites have emerged, which rank validators based on their expected yield (similar to investing in anETF). So the average consumer does not need the technical prowess or high investment to become an effective validator. You can simply deposit your crypto with an existing validator and passively earn some yield. JP Morgan has estimated that staking generates about $9 billion in revenue annually and this could grow to $20 billion in the quarters following the launch of Ethereum 2.0

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Other Blockchains

We’ve discussed the two big blockchains, Bitcoin and Ethereum, but there are many others. The overall blockchain market cap is currently about $2.3 trillion. This is dominated by Bitcoin at 41% marketshare and Ethereum at 21% market share. We’ve placed greater emphasis on Ethereum for this report because ETH is the dominant non-currency blockchain, which we find much more interesting, given the breadth of applications being developed.  

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We believe it’s useful to split the blockchains into two main categories – currency-based blockchains and application-based blockchains. Currency blockchains serve as alternative currencies, which are used for buying and selling. These are asset classes without much utility beyond the currency itself, similar to fiat currencies. Primary examples include Bitcoin, Tether, USDCoin and Terra.

The second category is application-based blockchains, which generally focus on enabling smart contract technology so that broad applications can be built on top of these platforms. These are often called decentralized applications or dApps. Also, decentralized finance or Defi is a common term for this category. Key examples of application-based blockchains include Ethereum, Solana, Cardano and Avalanche.  

We would categorize Binance, the third most prevalent crypto, as a hybrid between the two. Binance began as a crypto exchange but has since morphed into an application-based blockchain with the launch of Binance Smart Chain.

Binance

Binance was launched in 2017 with an Initial Coin Offering(ICO). The 100 million tokens were offered (BNB) at a price of roughly $0.15 USD equivalent. The coins were initially built on Ethereum but Binance has since moved to its own native blockchain, called Binance Chain. The initial utility of the BNB coins was to offer crypto trading at a deep discount vs. other currencies. Binance Chain was purpose-built to be a really fast and effective cryptocurrency exchange; however, it wasn’t designed to support smart contracts like Ethereum and therefore could not support new applications. Binance launched a new blockchain called the Binance Smart Chain to compete against Ethereum as the go-to blockchain for non currency applications. One key feature of Binance Smart Chain is the compatibility with Ethereum Virtual Machine (EVM). This makes it relatively easy for applications built on Ethereum to be migrated over to Binance. In October 2021, Binance announced a $1 billion commitment to fund app development on its blockchain.

Tether

Tether is a cryptocurrency that runs on the Ethereum blockchain. Its primary differentiator is that it is in the category of stable coins, which means that it is backed by an external asset such as fiat currency or gold. The price of Tether is pegged to US$1.00. Tether is generally used to take advantage of crypto transaction speeds and lower costs while avoiding the high volatility often associated with crypto currencies.

Solana

Solana was developed as an Ethereum alternative to support widespread blockchain applications. It is also a proof-of-stake network and so can tout faster processing speeds and lower transaction costs. Solana has grown quickly since its launch in 2019 as evident by its rapidly increasing coin value (SOL). SOL was trading at roughly US$20-30 over the summer but is currently priced at about $180. There are now about 500 decentralized apps on Solana vs. about 4,000 on Ethereum.

Cryptocurrency Exchanges

Much like other exchanges, crypto exchanges are marketplaces where crypto and fiat currencies can be exchanged with each other. The crypto exchange makes money via commissions and transaction fees. Some of the most prominent exchanges include Binance, Coinbase, FTX, Crypto.com and KuCoin although there are literally hundreds of exchanges to choose from. The exchanges tend to compete on a few key factors: security, commission fees, ease of use, liquidity and the number of currencies supported. For example, Coinbase charges fees up to 0.5% but supports 123 currencies on its exchange. The largest exchange, according to transaction volume, is Binance, which is a private company. According to press interviews, Binance was expected to generate about $ 1billion in profit in 2020 vs. $570 million in2019. The largest public company exchange is Coinbase, listed on the NASDAQ. Coinbase has a roughly $64 billion market cap and will generate about $7billion in revenue for 2021.

DecentralizedAutonomous Organizations (DAOs)

In the spirit of decentralization, DAOs were born. Originally devised in 2016, the DAO is an entity that is governed by the community around a set of rules governed by the blockchain. The collective group of coin or token holders vote on all decisions until the majority is determined. This is all facilitated using smart contracts so that there is no ambiguity. DAOs have risen in prominence as a direct extension of the blockchain, which aims for a much more autonomous and transparent org structure vs. the typical centralized corporate structure. Typical organizations require lots of third parties to ensure that all actors are behaving properly. This includes accountants, lawyers, and banks. DAOsneed no such intermediaries because all the governing rules are open to public scrutiny. The largest global DAOs include Uniswap, Aave, Maker and Curve.

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We’ll highlight one key DAO risk that will be interesting to observe over time. Mainly, democracy doesn’t always work very well. One of the main complaints against Facebook is that it doesn’t do enough to limit the hate speech and misinformation on its network. What happens if the majority of people in the DAO don’t do the right thing? It’s been known to happen as evident from the 2016 US presidential elections. Sometimes the masses are wrong and with aDAO, there would be no central authority to correct any bad decisions.

Deep Dive into Uniswap

Let’s dive into Uniswap, the largest global DAO, just to flesh out some of the details. Uniswap was founded in 2018 as a decentralized protocol used to exchange cryptocurrencies. It was formed as a traditional company and secured investments from various VCs including Andreesen Horowitz. In 2020, it converted into a DAO to decentralize its governance based on the issuance of the UNI token. The company issued 1 billion tokens and distributed them roughly as follows: (60% to the community, 21% to team members and future employees, 18% to investors and 1% to advisors).

Governance works as follows: any holder of UNI tokens can submit a proposal to make changes to the exchange protocol. The proposal must receive at least 25,000 votes to move to the next stage of evaluation. This next evaluation must receive at least 50,000 votes to be successful. The final approval requires40,000,000 yes votes to become eligible for implementation.  

Non-FungibleTokens (NFTs)

Non-fungible basically means unique or one-of-a-kind. This is a really important feature for the digital world that we have created. The internet has made it really easy to copy and paste, whether it be images, videos or stories. NFTs bring that all important attribute of scarcity into the mix. Most NFTs are built on the Ethereum blockchain although there are exceptions. We are a bit surprised that there is so much skepticism around the inherent value of NFTs. The naysayers will ask why spend $69 million for this Beeple NFT when I can just copy and paste the image off of any Google search. But we’re all fully comfortable with the notion that “real” art originals like the da Vinci below is worth $450million and yet I can still copy and paste it for my own viewing pleasure for free. We think the world will get over their NFT hesitancy similar to how it did with domain names and URLs.

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NFT Drivers

Speculation – we would generally put most digital artwork into this category. Even NBA TopShots would go into the speculation category, in our opinion. This is because there isn’t much utility in these NFTs outside of potential price appreciation. There is a memorabilia element in this category similar to why many of us used to collect baseball or basketball cards, but we would argue that speculation of price appreciation is still the primary driver of these types of NFT projects.  

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Membership – We prefer this category of NFTs because it does not rely purely on human psychology to drive demand. These types of NFT projects aim to connectNFT ownership to real world utility such as access to physical products or exclusive events. For example, Adidas recently launched an NFT that will give owners access to special edition physical goods in 2022. One could argue that this is just a pre-order for merchandise but it’s much cooler with an NFT attached. Another example is the BoredApe Yacht Club (BAYC). This is a collective of 10,000 individual NFTs minted on Ethereum, which “doubles as your membership” according to the website. And what does membership give you?  Access to celebrities because a few BAYC owners include Jimmy Fallon, Post Malone and Steph Curry. Access to new NFTs, which can be monetized.  And invitation to exclusive real-world parties across the globe.

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Proof of Ownership – This is probably the least fun and most practical flavour of NFT. Proof of ownership is often a very manual process prone to errors and manipulation. Wouldn’t it be easier digitize my car ownership or medical history via NFT vs. the alternative of paper and fax machines? One very real example we would point to is how E&Y is using NFTs to eliminate forgeries in the wine business. Wine cases will be marked with a unique token that stores metadata in its properties. A wine buyer will have the ability to verify authenticity via Ethereum before splurging thousands of dollars on fancy wine.  

Another very intriguing opportunity is emerging around real estate. Not the digital variety but actual physical real estate. Verification of ownership is a very cumbersome process with real estate, requiring lots of paperwork and trusted third parties. What if real estate could be tokenized with smart contracts directly on the blockchain, that provide all of the details related to ownership, location and investor rights? For example, 1 million tokens could be issued with use of proceeds going to purchase land in California. When the land is eventually sold, the disbursements are automatically distributed to the token holders in equal proportion. Additionally, the tokens could be offered on an exchange so that there is trading liquidity throughout the lifespan of the property asset.

VirtualWorlds

We’ll avoid going into ancient history (i.e. About 20 years ago) with what we would consider as the origins of virtual worlds, namelySecond Life and MySpace. Instead, we’ll begin with what we believe to be the real inflection point for adoption into the Metaverse. We’ll draw your attention to Fortnite and Roblox user growth in the periods from 2016 to 2018. Fortnite’s Battle Royale was launched in 2017 and then exploded in popularity, reaching 30 million users by December 2017 and 200 million users by November 2018. Roblox saw its popularity rise from about 9 million users in February 2016 to 70million users in September 2018.  

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We highlight these two companies as the modern day pioneers of the metaverse concept because they created a free flowing world where gamers could interact in ways beyond simple online gaming. Roblox allows kids to hangout and communicate.  It allows developers to create different gaming experiences into the Roblox universe. These are the central tenets of the metaverse.  

Fortnite allowed users to enter an arena and battle for supremacy but what made Fortnite really unique is the openness and unpredictability of the experience. Countless numbers of player types, weapons, skins, etc. ensured that every game was different. Fortnite began to evolve into a virtual world where activities beyond fighting were spawned. For example, the first Fortnite virtual concert took place in February 2019. DJ Marshmello held a ten minute live virtual concert and over 10 million people came to watch. This was a big step in the industry’s shift toward metaverse.

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Decentraland

There are several new virtual worlds that have been created of late. We will focus on the two largest, Decentraland and Sandbox. Decentraland was launched in 2017 with an initial coin offering (ICO)that raised about $26 million and was opened to the public in 2020. Decentraland’s coin is called the MANA, which is priced at about 0.00088 ETH or $3.30 per coin. The implied market cap of the MANA coin is over $7 billion.  Decentraland is comprised of parcels of land, which can be bought and sold with MANA although land ownership is authenticated via NFT. The initial auction took place in 2017 when the equivalent of about $30 million was spent to buy up 34,356 parcels of land. Land owners can use Decentraland’s own terrain builder to modify their space and build digital assets or they can import other 3D models. There is generally a great deal of flexibility in how users can develop the land to build games or sell products via the MANA currency. The flexibility arises from the fact that Decentraland operates like a DAO, which we described above. Therefore, there is no central publisher that unilaterally makes the decisions for what is acceptable in Decentraland. MANA holders can submit proposals, which get voted on by all coin holders.

The real world has begun to migrate into Decentraland. For example, Sotheby’s auction house opened a virtual replica gallery in Decentraland in 2021.  Sotheby’s held its first curated NFT sale in the virtual world shortly after its digital space was completed.

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Sandbox

The Sandbox metaverse is comprised of 166,464 pieces of land, each unique and represented by an NFT on the Ethereum blockchain. Sandbox has taken more of a partnership approach vs. Decentraland in order to boost its popularity. It has partnered with various brands and celebrities including Adidas, the Smurfs and Snoop Dogg. Snoop has a virtual mansion in Sandbox where he can perform concerts and interact with fans. Snoop is also selling virtual art, merchandise and exclusive event passes. The native token for Sandbox is called SAND and is currently priced at about $6.00 or 0.001584 ETH. This gives Sandbox a roughly $18 billion market cap. Sandbox is not yet a DAO but appears to be moving in that direction. There are suggestions that a conversion to DAO will be likely in 2022.  

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Overall Views on Virtual Worlds

We like the advantage that the legacy virtual worlds carry, mainly a built-in audience. We’re not sure how much weight it will carry to ordinary players whether the world is owned by a central authority or fully decentralized. The most important aspect will be utility and that comes with audience and engagement. Fortnite and Roblox or extremely successful brands with hundreds of millions of engaged players. Decentraland has about 300,000 monthly active users, which isn’t enough scale yet. There are still too many occasions where a user will experience a “ghost town” while playing. I.e., Nobody else is around to interact with. Sandbox has about 30,000 monthly active users. Given the valuations of both of these newcomers, we would argue that expectations are very lofty for where these worlds will go in the coming years.  

Play to Earn (P2E) Gaming

The central innovation with P2E gaming was the idea of allowing users to take digital assets out of the game and monetize them via crypto exchange in the real world. In the traditional publisher-dominated gaming world, all of the digital assets that the player accrues, whether it be cool skins or weapons, only hold value in the game. The publisher sets the rules on how and when any of these assets are tradable within the game. In the new P2E model, someone who has built up a portfolio of great digital assets can pull those assets out of the game and sell them for hundreds or even thousands of dollars. This has all been enabled via the digital ownership properties of NFTs. To date, the largest P2E games have been relatively simple and not on the same level as tier 1 titles from the big publishers; however we believe this is going to change.  We will first describe Axie Infinity, the world’s largest P2E game and the one that brought P2E to the mainstream. However, several newer games including Alien Worlds, Star Atlas and Illuvium are starting to make noise in the market and hold a great deal of potential.

Axie Infinity

Axie Infinity is a game developed by a Vietnamese publisher,Sky Mavis. It was launched in 2018 and is now valued at over $3 billion based on a recent $150 million series B round led by Andreesen Horowitz. The game’s popularity has skyrocketed with about 2 million daily active users at last check. Axie Infinity’s publisher created a native Ethereum-based token called Smooth Love Potion (SLP) as the preferred in game currency. Players earn SLP after winning games and these SLP can be used to power up and breed new characters. All of this sounds relatively simple and standard for most games. The big difference is that SLP has a price chart and real market value. A single SLP is worth about 3cents although it peaked at about 36 cents in May 2021. While the dollar figures seem relatively small, there are reports of players earning thousands of dollars per month playing the game. The game has been most popular in low-cost regions like the Philippines.  

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Yield Guilds

The other notable feature of Axie Infinity is that it requires a relatively high price to get started. Players need three cards, called Axies, to get started. There are marketplaces where users can purchase Axies, depending on supply and demand considerations. In general, players will need to spend hundreds or even thousands of dollars to get started, which is a considerable investment, especially in low-cost regions. To address this issue, something called YieldGuilds have emerged. These functional most like banks for the P2E gaming market. Yield Guilds invest in the digital assets required for the game. Players join the yield guilds in order to play the games without having to invest the upfront amounts. Any of the earnings are split according to standard rev share agreement between the guild and the player.

Coins vs. Tokens

We’ve been using coin and token terminology interchangeably but there are some nuances in the definitions that are worth exploring. A crypto coin tends to be the native coin of the blockchain in question. For example, the native coin of Ethereum is Ether (ETH). This is a coin. The Smooth LovePotion (SLP) referenced above is the currency built for Axie Infinity and resides on the Ethereum blockchain. For this reason, it should be classified a token.

How about tokens vs. non-fungible tokens (NFTs)? Generally, tokens are fungible, meaning that they are interchangeable and non-unique. One SLP is the same as another SLP just like one dollar is the same as another dollar. NFTs are non-fungible, meaning that they are one-of-kind, unique and indivisible.  

Let’s drive a bit deeper into tokens. There are two main categories of token –utility tokens and security tokens. As a warning, we’re heading into some legal stuff but we’ll try to keep things high level. Utility tokens are meant to provide a specific utility outside of just holding or transferring monetary value like a security. Utility tokens generally offer access to rewards, prizes, experiences, etc. similar to a membership. For example, for all you golf courses trying to cater to a younger audience, consider issuing utility tokens rather than traditional paper memberships.  These utility tokens can trade on established crypto exchanges and golf members can potentially see price appreciation but the driver of owning the token is to take advantage of the utility being offered by the golf course.  

Security tokens act as more conventional securities like stocks or bonds. For example, a company could issue tokens to raise some capital and token holders would get similar benefits had the company raised equity with investors. Security tokens are relatively straightforward and fall under the purview of securities regulators, which comes with all of the usual risk disclaimers, KYCs, etc.  

The gray area generally comes with utility tokens because token issuers will strive to avoid being labelled a security token in most cases. Different countries and regulatory bodies have varied considerably in their views on utility tokens. The US SEC has taken a very conservative approach in its appraisal so far. TheSEC Chairman at one point expressed that “I believe every ICO I’ve seen is a security”. This blanket statement sets a very high bar for companies to credibly argue that their token offerings are in-fact utility. According to StanfordUniversity, some of the friendliest jurisdictions for coin or token offerings are Switzerland, Singapore, Russia and Estonia.

Community Coins and Tokens

One of the areas in the token world we are most excited about is how tokens are becoming effective ways to build community. Tokens are becoming the new fan club with their own membership rewards. For example, Rally.io offers “a platform for creators and their communities to build their own independent digital economies”. Rally will allow celebrities to launch their own coin as a way to help celebrities monetize their community while giving fans a chance to prosper in return. For example, a popular gamer named Alliestrasza launched a coin, which is now worth about $19.  There are about 148K coins in circulation, which means that Alliestrasza has an effective market cap of roughly $2.8million. Celebrities that use Rally need to ensure that they offer enough utility so as to not be classified as a security. For example, coin holders are eligible to enter exclusive tournaments and also receive NFTs, which can on their own be collected and monetized.  

A second example we would point to is Chiliz, a company registered in Malta. Chiliz offers fans“a new way to engage with their favourite sports teams and the teams with a new way to monetize their global fanbases”. Chiliz has also labelled its tokens as utility tokens because fans are able to obtain VIP rewards, exclusive promotions, chat forums and competitions. The company’s early success came in soccer with Italian team, Juventus, which was followed byParis-Saint Germain, Atletico de Madrid and many others.  

Conclusion

NFTs, DAOs, tokens…don’t let all of this new terminology freak you out. We encourage readers to start doing their homework on this stuff because it’s not a fad. We expect major disruption to traditional sectors of the economy as the full blockchain theme takes hold. It took about 10 years for URLs, domains and dot coms to shift from niche to the mainstream. We expect blockchains and NFTs to make the journey much faster. So don’t look away. Hop in and try to figure this out because it’s going to become much bigger than you think.

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