The Financialization of NFTs
We are about to experience a convergence of NFTs with DeFi, forming a new capital market for content and brands. Join us this week on Clubhouse where we explore these concepts with special guests Sean Neville, Co-Founder of Circle and Jake Brukhman. Foudner & CEO of CoinFund.
[00:00:21] Hey, Jake, how are you doing?
[00:00:24] Hey, Jeremy. How are you?
[00:00:26] I'm really good. How are you?
[00:00:29] I'm good as well. Thanks. Thanks for setting this up.
[00:00:33] Yeah, absolutely. So just just for everyone here, this is this is part of the The Money Movement Club on on clubhouse.
[00:00:43] And The Money Movement is is is sort of moving from being a video podcast to being something that we really try and do here as a club on clubhouse.
[00:00:52] And great to have a lot of awesome people in here. And we're doing this to sort of talk show format and really, really excited to have another conversation with you, Jake. Obviously, that sort of meta theme here is this financialization of MF's.
[00:01:07] And I think we're going to talk more broadly also with Sean, who's Circle co-founder, who's going to join here in a little bit. But just I think these bigger themes of, you know, kind of monetization that are happening with Nettie's, it's a essentially a very, very significant radical new form of monetization for content and items and other things on the Internet. And so we want to kind of touch on the interaction across all of those. But if you actually got me excited about about doing this this episode and having this conversation with something that you recently published, there are obviously some great tweets. But sort of sitting behind it, you wrote something that really had to do with really discovering price discovery. And, you know, Nettie's are this new category of value. And there's so many different ways that people are trying to figure out how do you establish value on these? You know, is this purely speculative medium? How do we think about this more broadly if entities, you know, scale out to be millions or even hundreds of millions or billions of entities, how do you create price discovery and efficiency around that? There's so many different dimensions to this that we want to talk about. But maybe just to kick things off, take, you know, just for for everyone's benefit here. Just talk a little bit about the high level kind of, you know, concepts that you have around financialization advantages. And if people need some fundamental definitions, we can get into those as well on some things to me.
[00:02:43] And I just wanted to say that last one sorry, the last clubhouse we ran with me on NFTE, that was like super, super insightful and great questions. I'm super happy to be back here with you on this topic, which is now going a little bit, maybe like one layer deeper, you know, into this whole thing. So the high level is. That the the thesis that I kind of put forward is that I think we should design and if he's is basically property rights to digital content, that's you know, if you read the first piece, which is all digital content is going on, and that's what it's basically saying. And there is a little bit of a disconnect kind of with what is actually out there in the market in terms of implementation. And that view, because we haven't worked and I don't know the terms of service into like an to issuance yet, but it will happen. And actually, I'm talking with a number of groups who are interested in marrying like the legal side and the token side. And there's a lot of precedent and blockchains anyway, we could go on and on about that.
[00:03:53] But the high level is high level is the thesis is that is are new financial asset class. Last time we spoke about the fact that that is very exciting because that particular asset, that particular set of assets like IP that exists in the real world has historically traditionally been quite illiquid. And in turning them into digital assets like entities, we actually kind of taking them public in a way. And that is a big that is a big event.
[00:04:25] So, yeah, you use this phrase liquid intellectual property, which I love, which is, you know, a, you know, intellectual property. I mean, so many things in this world, obviously. And, you know, the obviously a lot of people may or may not remember Esther Dyson's, you know, seminal work in the early days of the Internet where, you know, she she you know, the mantra was information wants to be free. And I think a lot of the ethos of the Internet really from that point in and it leads to open publishing platforms, even one might even say net neutrality and and broader concepts for this sort of open medium are anchored in historically the idea that information wants to be free and the Internet fundamentally wants information to be free and everything should just be out in the public domain. And I think, you know, for for for for for many people, they've struggled with that. And what that means, if intellectual property essentially does that destroy intellectual property is the other side of that? And what does it mean to to to have intellectual property on the Internet? And we actually haven't had a way to, you know, in a systemic way have intellectual property on the Internet, at least, you know, we have open source. Right. Which is a very, very specific form of intellectual property and creative commons. And these all reflect this ethos of of, you know, information wants to be free. But now we're seeing that, you know, the creative people and that spanned so many things. Right. Are realizing actually my my creative work has value. How can I actually marry that value to the Internet in a new way? And so this idea of liquid IP, I think is really, really powerful. Just just to maybe connect the dots to that early conversation we had and some of the writing you've already done just for everyone who's who's kind of in attendance here. Just a reminder, you know, that the kinds of things that are going to become NFTE that we we kind of don't imagine as intellectual property that can be liquid on the Internet today, just maybe Radloff, that I think you had a tweet storm with like 30 things. But whatever would be interesting for people to hear.
[00:06:53] Right. Yeah. So just to recap a little bit and thanks, Jeremy. You know, we predominantly think about Nafees as visual art collectibles and in games as today, we're starting to see a little bit of music being issued as entities. We're starting to see some like generative art and like algorithms and a little bit of writing. That's Mirah. But if you think about kind of the long tail of digital content that could be tokenized, it's really very, very long. If it includes stock photos, it includes 3D models. It includes, you know, metaverse assets. It includes plug ins into Photoshop domain names, you know, and we could probably go on and on and on. And we didn't even mention, you know, kind of streaming video and and audio and like the usual things that live on centralized platforms today. Art is a two to three trillion dollar market today. God knows how big it's going to be after it's tokenized. But if you I think if you sum up the long tail of, you know, the least, the less. Were the more boring assets, let's say, like Funds' icons, right? All of that stuff design assets, you know, I think all together those things on centralized marketplaces is a bigger market.
[00:08:22] Yeah, absolutely, I mean, and I think, you know, we have, you know, essentially, you know, moments, right? You know, things like Tom that are demonstrating, like you're able to take, you know, the expression of something that's amazing, that happens in the world and and turn that into liquid IP, which is when you think about the amount of content that gets created of that type, associated with the things that people have an emotional value attached to or or or would be interested in possessing in some way.
[00:08:56] It's it's it's pretty mind blowing. So, I mean, maybe it's billions of entities over time. Easily.
[00:09:03] Yeah. And so I guess I guess to take it a step further. So if we accept that thesis that, you know, we're dealing with a new financial asset class, then if we step back for a second and look at digital assets in Blockchains, you know, we basically have this bifurcation into fungible as a non fungible.
[00:09:24] And traditionally, traditionally, historically, you know, fungible are very liquid. And the criticism of non fungible has been that they are very illiquid. So so the challenge, that first assumption a little bit, I mean, if you go back three or four years, it was actually quite challenging to get a token to be liquid for most founders, that looked like kind of getting listed on a centralized exchange. That process usually spend months and sometimes years, sometimes involved multimillion dollar payments to exchanges that wanted that kind of compensation for listing, especially at times like 2017 IPO boom.
[00:10:07] And in fact, liquidity wasn't that easy to obtain for tokens.
[00:10:14] Now, one that ended up happening is that the market recognized this and created these exchanges.
[00:10:22] And decentralized exchanges today serve two billion dollars of daily volume. And together with liquidity mining programs, they have brought down the time to liquidity of an C 20 token to basically zero to basically a day or a week or something like that. And so what we're you know, in that progress, we're seeing essentially mechanism design being applied to the liquidity problem for fungible. And the really funny thing about that market is that two billion dollars a day, we're still less than one and a half percent of general crypto volume. Right. And it's it's tiny. It's tiny. And yet it's serving the entire long tail of, you know, of the DFI tokens.
[00:11:18] And if they're really like the sexualize stuff and the esoteric stuff and points to to take a much bigger chunk of that market.
[00:11:26] Now, when we go to the non fungible asset class, then the criticism has been, well, you know, these are very illiquid assets. They're dangerous. You know, these marketplaces that they're on are really doing a good job with liquidity. And sort of what my second article goes into in that article that you that you pointed out, Jeremy, that's called appraisal games and the liquidity problem. This is pointing out that for non punchable, it is merely a mechanism design problem as well to solve the liquidity problem.
[00:12:04] It's just that it requires different mechanisms and fungible. Right. Right. And yeah. So the problem there, does that make sense? No, no, it totally makes sense.
[00:12:15] I want to you know, just for for for people here, you know, kind of trace this through to, you know, a real world example of, you know, obviously the big classes of of entities that people are focused on today are things like crypto are obviously there's there's sort of, you know, other forms of native digital content. There's these creative creative expressions. There's moments, there's in-game items.
[00:12:44] Right. But, you know, maybe just talk about what's the problem that, you know, someone who has, you know, is trying to accomplish someone who wants to buy one of these and is trying to figure out like, what should I pay for it? And then someone who has won it and potentially says, you know, I think this is really valuable. And is there a way for me to generate other financial value from the asset that I hold, which is what people do with stocks that they own or houses of his own or or other? You know, stocks and houses are nonrefundable tokens, too.
[00:13:18] So they're non fungible in terms of what in fact, they are. And, you know, just maybe just again, just like connect to, you know, a couple of real real world examples here that I think people can connect to.
[00:13:34] Yeah, well, I think I think the really disruptive example and as you pointed out, there's two sides of this, right? There's the supply side. I'm the creator, I'm creating. And if office and they're sort of the demand side, I'm the buyer. But if he's the investor, the collector, whatever, you know, whatever it may be, I think the really disruptive use cases when you can say, listen, a creator has created a work of art and they can deposit this work of art into a smart contract and really like without a counterparty, they can withdraw liquidity.
[00:14:12] I mean, that's incredibly powerful, right?
[00:14:16] That is incredibly powerful.
[00:14:18] I mean, it's disruptive. It's not just powerful is disruptive. Right.
[00:14:22] Because we often think of art in the traditional sense, being, like, very expensive. And this will surely bring down some of the price points of art. So on the one hand, it creates a mechanism just working on a welcome. Yep, so so on the one hand, it creates, you know, this completely incredible ability to turn creative content into cash and on the other hand, it brings down the price point of that, you know, those assets over time, right. On the on the demand side, you you mentioned, you know, like maybe we want just to understand pricing better. Like we want to know as investors, like, how do we how much should we pay for for the fees? And also we want exposure in ways that that are hard to get today. Right. So today, if I get this question seven times a day from from folks looking at the end of this space, how do we participate? And, you know, as an investor, it's quite hard to go and have to buy enough and try to predict what's going to be big later. And, you know, who's a talented artist and what's going to sell later, what's going to be a big brand. And really what investors probably want are some kind of index fund exposure vehicles that's now becoming possible with things like fractionalization, you know, with with funds unchained that hold enough teas and things like that. And so we're not creating vehicles where investors can easily invest into the space and the space can benefit from that from that capital. So that's another really important aspect of the financialization.
[00:16:12] Yeah. So there's a lot of pieces here. There's price discovery, there's fractionalization. There's, you know, the ability to to, you know, essentially, you know, borrow against assets that I have, you know, a lot of us there. I want to welcome Sean into the conversation. And I know Sean is going to bring, I think, a really different lens here. Sean, as as many of you know, is co-founder of Circle. And we've been talking a lot about entities lately. And I think, you know, the theme maybe I could have you comment on Sean is, you know, that really this concept of this new model of monetization for creators and create and creatives, and what does that look like for, you know, for creators and creators? And and then we can, I think, connect the dots here because that they are ultimately related, because you are creating these markets for creativity that are quite different, but maybe maybe just kind of laddered over. You hear Sean and hear some of your high level thoughts.
[00:17:20] You're meeting.
[00:17:29] All right, I'll text John and see if you can hear me. All right, well, we'll we'll come back in a second on that and and come back to you, Jake, so maybe we can take some of those actually use cases.
[00:17:46] OK, Garcon. Yeah, that's right.
[00:17:48] Not too many microphones running at the same time. Sorry about that.
[00:17:52] Had no problems with you. Did you hear my my kind of.
[00:17:55] Yeah, I did. Yes. And I heard I heard the story came into play here. I hear what you say. And I think, you know, it's worth returning to how you look at this as an investor as well, because it's it's increasingly tricky. And they're they're obviously emerging tools and mechanisms that are pretty interesting. But it's a it's a lot to make sense of it on the creators side of things. Yeah.
[00:18:18] That's that's the area that I've been looking at pretty closely and I guess represents a little bit of a personal light bulb moment for me that I had a few months ago on this, which was is related to, you know, this this concept of actually owning a piece of owning a piece of digital content as opposed to subscribing to or following or somehow acquiring access to a gateway into the content. So, you know, it's not a ticket to view and experience. It's not a subscription to access written content or to stream it. It's the ability to own a digital thing and that concept of ownership and then also secondarily provenance and the history or, you know, quote unquote legitimacy of a piece of content is just something that is not it's not impossible for with any kind of digital goods. And it obviously changes things for creators, as there are obviously a ton of high profile experiments in that space right now that are happening. But I think it really transforms things for for content creators who are also consumers of other kinds of content. And and that's, you know, fans, its followers, it's audiences. But my particular area of interest is audience. The audiences that consist of other content creators, whether they're streamers, gamers, digital artists, musicians, whatever, in the kind of convergence of ownership with with with with finance and how all these things sort of fit together. So so that's sort of the area that I've been thinking of. And what this is I mean, there's lots of examples. The difficult thing about talking about content is and trying to explain it to others.
[00:20:11] A lot of the examples can seem a little bit trivial, you know, and the underlying sort of expression of the origination and the ownership is is powerful but doesn't necessarily resonate with with just everyone. You know, I can say I can give a simple example. Like, I can walk into a museum and take a picture of the Mona Lisa and I can digitally distribute that anywhere online that can put it anywhere I want. I can make it in my house. And but everyone knows I don't actually own the Olisa. I can't legitimately sell it unless I'm particularly clever. I can't really sell it. But not everybody would want to own have that sense of ownership in the first place. So it doesn't necessarily resonate with them.
[00:20:53] But for those who do who do place value in the concept of ownership and the things you can do with ownership and pulling, pulling things into, you know, collateral, but also participating in upside, you know, sort of future revenue streams attached to ownership, ownership and provenance is just something that is just new in this space.
[00:21:17] Yeah, no, totally. And, you know, I guess like when we talk about financialization, there's sort of this is like fundamentally a new way to monetize creativity, which is which is powerful.
[00:21:28] I think, you know you know, you can imagine and this Jake was talking about this at the start, which is, you know, people who have tried to create liquidity for fungible that historically had a problem and now obviously a decentralized exchange and liquidity pools and automated market makers and other things are are making it easier to bootstrap liquidity on things.
[00:21:48] But with entities, you can imagine a world where, you know, effectively, you know, people are issuing, you know, you know, fungible tokens to finance the creation of non fungible tokens. And then, you know, sort of like, you know, Kickstarter. Right. And then you get the funds, you get the non fungible token. It's like a preorder. And then, you know, you're you're then, you know, participating. I understand. But then there's obviously down down the line, the other, you know, other forms of financialization that can happen once it exists as property, you know, in this digital realm. So it's a lot of interesting connection points there, Jake, and maybe just to connect back to you on on on, you know, kind of taking some of those simple examples and then maybe bringing them to life, you know. Yeah, go ahead.
[00:22:42] So maybe just tend to go back to the thesis of the article, which really deals with, you know, a lot of kids are doing financial asset class and then we're going to need sort of financial derivatives and services for for that asset class. And what does that look like? What does that start with? And I think what that starts with is this like problem of liquidity. And that problem has seemed historically very hard. And and I guess the main question that the that the piece tries to address is, well, how do we solve that problem? What are the actual mechanisms available to create enough liquidity? And we see a few mechanisms in the market today. So like the basic way of creating a pricing for it. And if T is to sell it in the marketplace like open sea or wearable or something similar, and that's, you know, that's great. But what we see is that if you restrict yourself to only pricing in fees this way, you know, it's hard. You need like a really critical mass of buyers and sellers that historically hasn't been there. You don't get like a ton of sales. They're going up. But, you know, there's like a long tail of assets that that never sold. And so you don't know what their prices might be. The other way is auctions. And as a matter of fact, if you look at the chain data, you will find that something like 80 to 90 percent of people who transact and kind of the existing marketplace is like super today will prefer the auction format. Auctions are probably preferred by creators because they tend to be exuberant. They maximize the return the creators make and they also end up paying a price. So you know what makes a great mechanism for, you know, for creating liquidity?
[00:24:43] And I argue that what makes a great mechanism is capital efficiency. What does that mean? Well, if I'm selling. And then it's worth a million dollars and someone buys that NFTE for a million dollars. That kind of means that like for every dollar of valuation that we created, a dollar had to change hands. And if you bring that into the auction context, it means like for every dollar of valuation that is created, one or more people bid on that. Right. And so potentially more than a dollar had to be changed hands and even be locked into the auction mechanism for a while in order to create that valuation. And so the question is, do we have mechanisms that are more efficient than that's where I can price something at a million dollars. But in doing so, I don't spend a million dollars. I maybe spend 100 dollars. And the answer is yes. There's there's a bunch of different mechanisms. Kind of the most obvious one is, well, create a machine learning algorithm that goes around and, you know, machine learns all of the traits of Crypto natives and all of the properties of crypto punks and then compares that to how they sold on the market and then creates a model that can automatically price these collectibles. And then the cost of that mechanism is the cost of, you know, creating and maintaining the model, which is really kind of a fixed cost. And then the valuations that it can create are infinite. And so the efficiency goes up, the capital efficiency goes up over time, gets amortized over that cost. And that's a great approach. And I think a few people are doing that in the space. And the problem with that approach is we kind of it seems like it would probably work quite well for really objectively value things like collectibles, but it would probably not work that well for really subjectively value things like arts. And so there's another mechanism which is fractionalization. This is also an example of a mechanism that can value something at a hundred million dollars, but only a few dollars need to change hands in order to create the valuation. And that's because the NFTE becomes sharded into a number of tokens and only a few tokens have to change hands to imply a valuation. And so. Sexualization is a really capital efficient mechanism for pricing and NFTE, but it's also like really heavy machinery, like if you have if you think about all the objects that we have sort of counted as belonging to the entire class, we're talking about trillions of objects and some of those objects cost five dollars. And it's probably not that capital efficient at the end of the day to create a token supply for every one of those trillion objects and a whole community around it. And fractionalization also comes with a bunch of complexity in terms of sort of mutual ownership of the things. So, for example, you know, no one really talks about what happens if you take fifty one percent of the tokens of the fractional and that's it, you know, burn them. Does that mean that the asset is now worth zero because you can't move it and you can't vote on it anymore? You know, no one talks about how to unfranked analyze the fractionalized assets. It seems to be sort of like a one way street unless you take extraordinary efforts to design, you know, the governance system to undo that. And you still have an edge condition where maybe you won't be able to. And so when I think about fractionalization, I think about that makes sense in a context where the crypto punks. Right, where the assets are really valuable and it makes a ton of sense for like twenty thousand people to own them at the same time. But that mechanism doesn't work well for things that are five dollars in the long term. Does that make sense?
[00:29:09] Yeah, no, no, it does. And I think, you know, for for for a lot of folks, like some of this is is sort of feels like, you know, there's just like these intensely, you know, sort of speculative markets for, you know, icon creators. And, you know, how do you game that and how do you price that?
[00:29:26] And, you know, it's sort of this intense and sort of intense speculation kind of thing. And when people think of like derivatives and and now we're going to have derivatives for price discovery on on, you know, icon creation, like, I think for trilogy, where they have a hard time sort of relating to that. And and so part of me what what I'm interested in drawing out here and I'd love to try and take on this as well, is how do we get out of the like. Oh, yeah, there's like all these, like, really cool, like icon things and cryptid things and really, you know, stepping back and saying what are going to be Nettie's what are going to be mainstream fees that the average person is going to have that that, you know, are going to be in the world in a year or two years. And then how these fundamental financial mechanisms are going to improve the process of discovering, finding, owning and participating in those markets. And, you know, I think for for for a lot of folks, I think they they you know, they sort of struggle with like, OK, I hear what you're saying about machine learning on on crypto punks, you know, icons. But that isn't very relatable to what this looks like at scale when we are talking about the number of digital content objects that that might move into this kind of realm.
[00:30:51] You know, for sure, for sure, and so, well, that kind of brings me to the next mechanism that I talk about, which is creating pricing through oracles. And in particular, I talk about upshot. I think I saw Nick Simmons, who was the CEO of Upstart in the room. So, hey, Nick, if you're there. But the idea is that upshot is a really interesting protocol, which is an unchanged question answer protocol, which incentivizes the you know, the people who ask them questions, answer questions honestly. And the really interesting application of such a protocol in the NFC space is basically asking the protocol, what do you think this NFC is worth and sort of finding in the unchained way, kind of like educated consensus around the price? It doesn't have to be, you know, the exact prediction of the price. It doesn't have to be the price at which the creator necessarily sells the work. But it is, you know, kind of an estimate of what of what the market would value it at. And it's coming from the mission of, you know, essentially experts who are incentivized to do a little bit of work to figure out what that pricing would be. So they might compare like people and, you know, another trader and note that, you know, people sold work for billions of dollars and that might impact, you know, that final estimate. Now, when we have the Unchain Oracle pricing, I mean, what essentially we can then do is we can tokenizing it and sell it now. Right.
[00:32:33] And that basically creates liquidity for the long tail of anything. So when I think about capital efficient price discovery mechanisms, I think machine learning, you know, we'll have a little bit of a place. I think the really high value, publicly owned stuff like crypto punks will be likely fractionalized into your 20s. And that makes sense. I think the long tail of assets in a few space that are very cheap and like, you know, don't worry, a full token supply can be priced through oracles. And those oracles can create essentially some kind of like average pricing rate at which you can always, like, liquidate this portfolio. And then there might be other mechanisms like we've been seeing. Essentially, bonding curves applied to lefties. I think Oilor Beats was was an example of that. There's a few others and I'm not. So the advantage of that mechanism is that I think people can kind of the creators can kind of control the rate of appreciation of that curve, of that bonding curve. But it remains to be seen if that's going to be like a widely used mechanism. I'm super bullish on fractionalization and oracle pricing kind of for the majority of cases.
[00:33:57] Yeah, so, Sean, just asking you as someone who's thinking about this really from the creators perspective and, you know, and communities of creators and, you know, you know, people who are who are not focused on like trying to design, like, you know, speculative items, but really who are really just focused on monetizing creativity and and and what that looks like. How do you think about, you know, things like price discovery, fractionalization and appraisal models, you know, sort of balkanized appraisal models, things like that in relation to, you know, what what someone who is is really just really trying to do is just find a new model of monetization.
[00:34:46] Yeah. I mean, I think the this sort of peer production Oracle model is super interesting and there could be, you know, multiple variations of that.
[00:34:56] So I think that's relevant.
[00:34:57] I mean, from a creative perspective or even from a from a sort of creator slash consumer investor perspective, my my instinct is just that this whole you know, this whole ecosystem is just going to be way too big to to make it effective to sort of pick individual assets, at least as a generalist, unless you know something very deeply about a particular community or about a particular creator.
[00:35:26] And so, you know, pursuing other options is just as good as it's going to be necessary as this grows, because it's just this whole thing is the the Internet in this particular technology has just been so effective at taking illiquid, formerly liquid assets and then suddenly making them enormously liquid and less and a little bit about this recently.
[00:35:51] And so, I mean, there's a number of different ways to to go into creator.
[00:35:59] But still, some of the some of the most obvious problems are just in how you how you interact with this. You know, creators and traders are able to take take advantage of platforms like Twitch and others to sort of circumvent the Spotify like models. They don't no longer need several million monthly streams, 30 seconds or more as a musician to to make a living. They can have an audience of very loyal followers, the number in the hundreds, and can make a living. They need to churn out an enormous amount of content to do that, but they sort of cut out a lot of middlemen.
[00:36:41] Cutting out middlemen just means that the creators end up taking on more of those business functions themselves. It doesn't mean that the business function ceases to exist. So things like packaging, marketing, you know, community interaction, all of that sort of falls on the creator. So it comes to to digitizing ownership of experiences, whether that's that's, you know, a limited concert. You know, one hundred pieces of ownership of a concert that is concert that can be subsequently traded or or, you know, some other kind of, you know, piece of art, the tooling around how that works and and how, you know, what that feels like from a creative perspective and from from a follower perspective, assembling essentially a portfolio of creative objects that hopefully generate dividends, which is kind of what happens when you're when you're a follower, accumulating these experiences, tools and the experiences and what the products really look like is just not there yet.
[00:37:40] It's sort of a group of plug ins, multiple team options, different open marketplaces, a few sort of white label branded experiences as well. But there's there are a lot of great early experiments happening. But from a creative perspective, that Toolset acknowledges I am a I am running a business as a solo creator and I have a direct interaction with my fans and audience. And I need the tools to make all of that work effectively. That piece isn't there. So whether you do that as investment in infrastructure or just tools and other parts of the ecosystem, that's another in this sort of area, I think that will get fleshed out over these coming months.
[00:38:27] Yeah, and there's a huge, huge amount to build, obviously, on those fronts, I want to maybe just turn this one other direction and and get both your thoughts on this, which is as we started at the top here, when when most of the time when we're talking about entities, we're talking about, as noted, this sort of liquid intellectual property that can exist as digital content items that are that are, you know, on on on the Internet, on Blockchains, et cetera. But obviously, the the concept of a non token extends well outside of purely digital objects and into physical objects and and also into even access to, say, underlying royalty streams underlying, you know, yield from, you know, someone who's producing something. And I'm just curious to hear your thoughts on the crossover between the physical world and Nettie's. And it very much relates to the financialization of entities, because if you can build these really, really robust longtail capital market functions for entities at the digital content item level, you know, you also obviously are really fundamentally building the same underlying market infrastructure for entities that have to do with physical and physical objects as well as, you know, even concepts like there's a landowner in a country that wants to sell NFTE that are essentially profits from the the yield of the land, as it were, just in a really, really simple example. And that's a form of nonfunctional token. And those types of financial assets that also are going to need to participate in long term capital markets, that are also going to need to have these various forms of price discovery. And people are going to want to have index allocators and other things to be able to have those as part of their, quote unquote, portfolio. I would love to hear I'd love to hear your thoughts on that kind of crossover that's outside of the pure, purely created in a digital form kinds of entities.
[00:40:53] I'm happy to go Harish on if you want to, if you want to happen.
[00:40:59] No go for it will happen in a second.
[00:41:02] Yeah, well, thanks, Jeremy. I think you I think you covered it kind of the high level, which is that. Yeah, you're absolutely right. It's like the infrastructure that is being built out for, you know, and if Ts is kind of an abstract asset. Right. Can then very well be applied to real estate or car ownership or, you know, any number of sort of like physical organizations of of real world goods. Why are we not seeing that?
[00:41:34] Well, I just think that the digital side of things is a lower hanging fruit. Sure. It is also a you know, a very interesting.
[00:41:46] Interestingly, compatible sort of space with Blockchains. Because because I always think of, you know, visual art as being quite a serial and never, never. Never sure where the artwork actually is like, is it is it in your email or is it in your.
[00:42:01] Is it on Twitter?
[00:42:03] All those seem to be reproductions of digital works, but not actually the work itself. And so when you put that on a blockchains, you create that certificate of authenticity or even like the localization of that work in the sense of like you found it, the Blockchains. That's the handle to it. I can take that handle and transfer it to someone else.
[00:42:26] And that right is a demarcation of property and provenance. And those are like these fundamental things. And if it's entirely digital and entirely digital property ownership model, that's as you said, it's low hanging fruit. It's easier to to kind of get to and it actually ties to a lot of this, billions of different digital content objects that are out there today. So there's a clear mapping there. But there's there's no one could argue that there's far more digital content items than physical things in the world. But there's an awful lot of physical things in the world that people value. Oh, yeah.
[00:43:04] I was just I was just saying on the on the morning meeting a Bitcoin fund this morning, I'm like, everyone is kind of obsessed with, you know, what it is right now and then. Fine. But if you want to start the contrarian crypto fund of this particular moment, you should start the, you know, security token real estate crypto fund. Right.
[00:43:25] That's the thing that, like, nobody's thinking about that's coming next, which is, you know, essentially the tokenization and nifty ization for a physical goods.
[00:43:38] Well, and, you know, obviously equity itself, equity, people can say, well, there's you know, there's this sort of fungible tokens and then there's sort of fungible tokens that are scarce that are out there, governance tokens, et cetera. But like equity is a is a form of non tangible token. You know, you have X thousand shares or X million shares and they represent a profit sharing contract, you know, in the form of dividends and voting and the like. And you know that that that is just a financialization of the the work output of a collection of labor. And and so, you know, the interesting question for me is, when do we start seeing more assets that are equity like that are not themselves equity? They are not actually you know, there's not like a Delaware LLC necessarily, although with open law and things like that, you're seeing this kind of mapping that's there. But, you know, and of Ts as things that people can own and participate in, just like you'd say, like a fractionalized piece of crypto art is something that you can have ownership in and and it may go it may grow in value. It doesn't quite produce cash flows. But, you know, you know, it's sort of property, property and equity are both really big forms of entities. I mean, basically, they're kind of the equity in the world and kind of the property in the world and the financialization property. Right. I don't know how many gazillions of trillions of dollars that is, but it's a lot.
[00:45:17] Totally agree.
[00:45:18] Yeah, I mean, I don't want to necessarily go to the extent that you just we can see absolutely everything as an entity.
[00:45:27] But but, you know, if you if you want to do it as a thought exercise when it comes to things like real world items, where there's some barriers, whether geophysical or regulatory or whatever, to actually transfer the item, the way that I sort of thought of it in the past is really this is just as kind of another version of storage. I mean, having enough key, there's some meditator references to to media, you know, or other items that are sitting in in the eight of us as three bucket or they're in IPASS or they're you know, they're stored not necessarily on a chain there, stored elsewhere. The physical thing is like it's it's storage bucket is some plot on earth. And and it's sort of like, you know, there's a storage issue there.
[00:46:21] But the question around equity, though, is, is this true? What I know you and I have said a few times, that is cool. If when we started Circle, we could have just figured out how to have been a fully tokenized, autonomous organization that in twenty thirteen that was not it was really not a thing that was possible. So I understand where you're going, where you're going with that from. For me, I like the idea of not stepping into all the, you know, the regulatory hassle of securities and sticking with content because there hasn't been enough salt in that area for me that you never know for.
[00:47:03] Sure. For sure. I mean, content is the lifeblood of the Internet for many. In many, many ways. It's I mean, lots of other things, too. But but, you know, inverting the monetization model on that and and creating financialization of that are are profound. And those are also like these multi billion dollar huge opportunities that actually we're opening up new new outlets there. We have a little bit of time here. And so I thought I'd invite people to ask questions. And so anyone who has a question put, you can raise your hand and we'll try and get you through. But, Angie, thanks for for joining us. We'd love to hear your question.
[00:47:38] Yeah. Thank you so much. So it's so funny. I had a call today with a I this the market from our video game perspective and I've been really excited have to use basically since they started and I had a real estate investor today call me and say and ask, why hasn't this taken off? Like we all read those articles in The New York Times about how downtown properties were going to be fractionalized and sold and traded for Brooklyn. And and and what you said, Jake, makes so much sense. And and I don't I just don't know the answer to that. I mean, there's a game called a plan that I've been playing where you can actually buy properties in New York City and or all over the country. And some of these buildings are trading at like two hundred thousand dollars, hundred thousand dollars in the game. But we haven't seen it in real life. And I just don't know if we're just not there yet. But I love all your thoughts.
[00:48:33] We can all probably blame Jay Clayton for four for that. Not actually not actually happening. And hopefully a more creative, inspired and technically competent head of the OCC will will lead the way here. But I think we literally we didn't we didn't even have a legal basis at the OCC to do this kind of stuff until the end of December of last year. So I think they're actually now is the legal basis for, you know, people who are involved in, you know, securities in a sense to have fully digital renditions that can be on blockchains cleared that or, you know, to some degree. And so I'm actually cautiously optimistic that this year we're going to start seeing a lot more activity there and that will grow over time. There's some there regulators in other markets that have been more progressive. But certainly here in the United States, there was basically a giant block on anything under the under the supervision of J. Clayton. That's just my quick, quick take on that.
[00:49:31] Hanji, great to see you. Thanks for your question. And I totally agree, Jeremy.
[00:49:36] I think part of it is just the kind of regulatory compliance piece.
[00:49:40] I would say also the following.
[00:49:41] You know, I'm super excited about the, you know, the real estate use case. And, you know, I'm not particularly biased whether it happens through, you know, security tokens or some other mechanism.
[00:49:52] But I'll tell you this. I sat down at a platform which Tokenizing reads like last year and realized that as a crypto investor, I'm totally unequipped to evaluate investments and every investor is totally unequipped to evaluate whether the blockchains technology that they're offering is on as good.
[00:50:15] Are trustworthy and and so I do think that there's a bit of like product market mismatch going on there, too, and it sort of depends on what use cases, you know, you want to put the technology toward.
[00:50:30] I was just going to say these guys were very successful Reed investors. So that's so funny because they they had no idea kind of some of the things that I was talking about with respect to art and gaming tokens. But they can definitely see it. And sorry, you have a puppy Harish. They could definitely see it in. And Rietz So that's that's really interesting.
[00:50:54] Yeah. This time I hope I have your pronunciation right.
[00:50:59] Welcome and good luck to your question to FX of this discussion on a really remedial play. So let me tell you kind of like a basic question. Let's say I created a piece of, you know, like a like a like a photo that you use a lot and everything is how do we generate the NSA out of it, creating a marketplace.
[00:51:21] Then there's a whole bunch of people buying a little piece of it. Or is it just one person that owns it? And can they make money off of it once they own it or the a different a copyright? And who's going to get my head around exactly what we're doing?
[00:51:33] Yeah, Trauner, Jake, you guys you guys want to take a crack at that?
[00:51:39] We're going to, you know, go ahead and probably go see exactly the same thing.
[00:51:46] Well, I would say to create the unity, you probably want to get over to some kind of platform that issues entities.
[00:51:54] There's a few of them that are open to anyone and everyone. The one about partial to is repairable dot com. That's that's our investment fund and super excited about what they're doing. And then to fractionalized, such an entity, once you have it, you can use something like FX dot com or, you know, in some cases you can use an FX dog, which is like funds for classes of such collectibles.
[00:52:22] And there might be other tools that are functionally similar to those.
[00:52:26] I said I mean, just looking at this, you know, as it is today. Right. You have some these are sort of early examples. I remember back in the early days of the Internet. Right. The number of kind of e-commerce marketplaces, if you had a product you want to sell. Right. Obviously things like eBay and took off in then Amazon Marketplace and others. But there are tons of those. And we're we're like, you know, we're in the nineteen ninety six, nineteen ninety seven of of of these marketplaces. And but I think obviously there's billions of people on the Internet now, and this is technology that is is really valuable I think will grow quite fast.
[00:53:06] But it has given the copyright.
[00:53:12] So if you're a platform that you're tokenizing on supports and most of them today do not just to be clear, but I imagine like in short order will be supporting kind of the idea that as a creator, you sort of choose which property rights you confer to the buyer.
[00:53:31] And so that might look like a party to their terms of service at a time of tokenizing.
[00:53:37] But today, it's kind of like I would say, like probably default. Copyright laws apply.
[00:53:44] Yeah, there's some there's some services that they're experimenting with, you know, like splitting up a music scene, Crites, again, you know, other kinds of licensing, songwriter rights, how do you sort of deal with all that? But for the most part, it's pretty rudimentary. And things like Jeremy and Jake said that the marketplace experiences are also pretty nascent. I mean, things like open sea and the sort of look like almost like an early eBay, although some are a little more specialized. There's a valuable stuff which is doing the Genesis tweets that have been getting a lot of attention lately.
[00:54:24] So some of the marketplaces are, I guess, a little more specialized, but for the most part, it looks pretty. And if you go to things like, you know, open seat Eyo or Bass or something like that, there's a whole bunch of them.
[00:54:35] I'm not I'm not recommending one over the other, but there are a bunch out there and you can kind of see how you might meet some of your own content.
[00:54:43] And they all have slightly different treatment of of things like rights, but they're ultimately pretty rudimentary and then ways of getting them into a marketplace. So, I mean, the easiest thing to do is actually just to just to kind of go do it and experiment with it and not necessarily go into it as an investor or the thinking that you're going to generate a lot of money. But just as an experiment to see how it works, I say overall for most most content creators and consumers, which are by and large the same people and some of these audiences, it's a pretty awful experience because it's so early. But obviously that presents pretty exciting opportunities. And then there's also the gaming side, which is, I would say, a little bit more mature because just because of the history of how this stuff came together.
[00:55:32] Yeah, just open it up to Sarda. Thanks for joining. Would love to hear what your question is or your thoughts.
[00:55:40] Yeah. Thank you, Jeremy and Jake. Great conversations. I wanted to just talk about the real estate applications of it. Jake, you mentioned that. Let's let's just preface this with assuming all regulations will eventually be solved about this.
[00:56:00] What do you see as some of the features in Diffa, like, for example, that liquidity mining or the applications of some bonding curves to entice early adopters? What if that is applied to, for example, the real estate projects like a neighborhood development project where a specific asset is being built on a quarter and the local stakeholders that live around their neighbors are able to all kind of commit their liquidity, give their liquidity provider liquidity towards this project, and then it gets built. And as they are providing liquidity, all those same stakeholders are earning equity tokens or governance tokens in the neighborhood development fund, so to speak. We have a property down in downtown Memphis. I've been in this for just three, four years. So I've been trying to talk to some attorneys here in the office and they're all looking at us like we're crazy. But I know this is possible, at least with from a technical perspective. But realty is doing some amazing things just from a fractionalization of equity and just I just see so much being built on top of that in the real world, just basically applying the DFI locally.
[00:57:34] So like local TV here, it's there's there's there's a lot a lot of possibility there.
[00:57:44] And I think as we were talking about earlier, I mean, I think up until really recently, the the sort of the kind of legal questions of how do you take something that is, you know, you know, what would be considered a security in the United States and tokenizing and offer it on these infrastructures, that that's been really difficult to do for a host of reasons. But I feel like, you know, things are starting to open up and then a lot of what is happening with entities and if I can can start to get applied to to that kind of property. I don't have any other thoughts on this.
[00:58:26] I think I think you guys covered it quite well, and that's a brilliant use case, you know, once the sort of rails get figured out and the regulatory gets figured out. I see the primary applications being like, you know, better crowd funding and co-ownership of of real estate, which is really exciting, but also like a kind of efficiency in terms of, you know, buying and selling your house and also building a portfolio of real estate like, you know, go along Manhattan and Brooklyn, like a lot of a lot of those things will be much easier using the Sheila Warren so cautiously optimistic that we're going to see some some of those things opening up.
[00:59:07] I know we've some of the we've seen sort of digital securities projects start to really get on the radar at Circle. And people are using Stablecoins with digital securities. And I think we're seeing, you know, we're seeing more of those coming down the pipe. So, so cautiously optimistic. Arcon. Thanks for joining. We'd love to hear your thoughts. Your question.
[00:59:29] Hi, this is Peter Creed of the Vampire. I would like to ask this question anonymously. Do you think characters like me with a voice like mine and a face like mine, you know, verifying the sort of proof of provenance and origination?
[00:59:50] And obviously there's a lot of a lot of things like copies and things that are out there in the marketplace. And it kind of stretches to the previous conversation, which is how do you if you have if you have a technical system that's capable of enforcing logic among parties that don't trust each other in the form of smart contract or so-called smart contracts, and how long will it take before courts recognize those same contracts as opposed to just contracts written in English? I mean, that's still kind of one of the fundamental problems that we need that we can solve.
[01:00:26] Yeah, yeah. Thank you, Sean, Jeremy and Jake.
[01:00:34] You're very welcome. Thanks for coming up, Societ.
[01:00:41] Hi, I have a I guess, kind of a low level practical question, so I think one of you I can't remember which one it was talked about comparing NFTE ownership to sort of what we do now where we get a subscription to a platform to have access to content. But I'm wondering, like, what does it actually look like, the NFTE scenario like are we talking about some front end that you can only access if you're if you're a partial owner of some NFTE? Like what is this looks like practically like, let's say an NFTE for a song or something. Sean, you want to take that?
[01:01:16] Yeah. I mean, I think there can be a lot of different product experiences that are created around it. And, you know, some of the early experiments that I've seen have been almost kind of like a patriot and like model where, you know, patriot today. I can I can follow artists, musicians, whoever they care about. And with some subscription fee, I can get access to additional content. And so the early experience I've seen has kind of been along those lines where instead of a kind of a UI that allows me to pay a subscription fee, there's a UI to grant me access to to to content data based on my ownership of of the of the actual content that shows that I'm actually in a position. I'm an owner of this content, other experiments, or are essentially like placeholders for future content so that I know I buy a piece of of a concert that hasn't hasn't heard yet. But I put my money in to be one of the ten thousand people who are able to access this live stream concert or something and or album release or whatever it is. So it's sort of a placeholder for future content that I'm able to access before others are. So those are some of the experiments around this. But you know what the product experience looks like for us as a consumer? Does it really does it look like a. Twitch or talk, talk or YouTube or Patreon. And what does it look like as a content creator and how does it tie into the fact that I, as a content creator, need to run a business? I have square. What does it sort of look like from a talent perspective? And then and then the underlying infrastructure between those two things where things really persisted. How does this cross chains, all the sort of infrastructure stuff that I, as a creator or consumer, don't really want to think about, but needs to function? We we need those things addressed as well. Not a piece of experiences just as well.
[01:03:18] And just to emphasize to I mean, I think part of the fundamental concept of entities is the portability and interoperability. And that's the foundational concept that the BLOCKCHAINS gives us and the Internet. I mean, but but ultimately, if these are just like siloed and stuck inside of, you know, private walled gardens, you know, you're not really doing anything to actually create ownership. The ownership does need to persist and it needs to persist outside of where you may have acquired it. And so there's tremendous opportunities for innovation in the consumer layer, at the infrastructure layer.
[01:03:53] You know, when we think about what banking of the future looks like, banking the future, whether it be for, you know, companies or or or consumers. Right.
[01:04:05] You know, how you store your your your digital your digital objects, which which have value in the same way that other forms of property have value and securely do that and not worry about it. Those are those are lots of problems that still need to be solved. And ultimately, if we can't have that portability so that these things can exist and be priced in markets outside of just the place, you got it. We're kind of missing the boat. But it's a great it's a great question. Maybe the last question. We'll turn it over to to Jim. Thanks for joining us. And then thanks for the question, Sessa.
[01:04:42] Hey, thanks, guys. It's a great conversation, I was talking earlier to Jack Burke, sat down to preventable. One of the things we're talking about is within he's someone had said someone who also was in the discussion was saying if you tokenizing enough to increase fractional shares, you know, you're getting into securities laws and that by definition made it to security. I guess I didn't think that was necessarily true. And I was going to use the example you guys about, you know, short, broken and long minute type of thing. If I were to convert the Empire State Building, let's say, into a fractional share ownership to me that to security. And it requires kind of central control and future monitoring and things. But if I take my LeBron NBA top charge card and I were to fractionalized that to 100 things and, you know, 100 people just happened to own it. But there's nobody who has to do anything to me that would not necessarily be a security. I don't know if you guys had a view on that. And then also about you just entities in general, it seems like everybody's just dumping a bunch of crap into a label that has integrity. Someone asked me earlier about taking their music portfolio and they said, look, if it's on iTunes, it's good the way it is now, like to stamping in, it doesn't mean anything. You know, I was wondering if you guys had a view on what constitutes value in an NFTE of, like, Jack Twitter. I mean, Jack Dorsey on Twitter saying, hey, here's my Twitter for two and a half million. But that to me is a moment in time. There's value to that versus just taking a music, you know, music portfolio that already exists and calling it a nest egg.
[01:06:20] I mean, this kind of gets to, you know, some of the fundamental thesis that that takes, you know, sort of was writing about and starts with, which is how do you establish value and how do you and how do you achieve price discovery? And, you know, because there are going to be this incredible long of people providing these and and obviously the current price discovery mechanisms and the marketplaces and everything else, you know, leave a lot to be desired. But maybe maybe there was a lot embedded in that question. Jim, I'll turn it over to to Jake and Sean as well.
[01:06:56] Well, on the question about security is that is a question that should be directed to legal folks, I'm not a lawyer. I don't know if Jeremy or Sean, you guys are having experience. But I would say, you know, just as a layman's analysis and again, don't take this as legal advice of any sort, I suspect the fractionalization probably wouldn't ideally be a security.
[01:07:22] I think if you apply the how we test might fail the common enterprise prong or the efforts of others prong, but again, probably up to the courts on that one. And then I'm not sure I fully got the second part of your question. Jim, you mind just restating?
[01:07:41] Well, the other one was just on what constitutes value in an entity versus people just dumping things with an intent to label. And I was giving an example of a musician who said, look, I'm on iTunes right now, you know, but but I'd like to have an entity because they're hot. And to me, that doesn't mean anything.
[01:07:58] Yeah, that's a good point.
[01:07:59] I mean, I was watching the Kings on the Kings of Leon NFTE tokenization the other day.
[01:08:06] And, you know, it's like they probably had a bit of a design space of what they could do with the Nativity. And so what they chose to do was this thing like having a set of keys, like denoting ownership in the album, you know, the music files, I guess.
[01:08:26] And that to me is can be an interesting case, but it's probably like a lot weaker, at least conceptually, from seeing everyone who buys the set of keys is entitled to part of the revenue stream of all the album sales.
[01:08:42] You know, that is a much more disruptive structure, in my opinion, because then it aligns all these people to essentially promote the album and benefit from their promotion. And it's really a much stronger alignment of incentives, you know, with you.
[01:08:58] But then you're getting into the security issue, which is what the other part of what I say. And that's exactly sort of the complexity you get into.
[01:09:06] Well, I mean, I feel like we should solve and explore these problems conceptually first. And then when we get the implementation, that's when we need to worry about jurisdictional of securities laws. And and also these securities laws apply to the states. And Blockchains is a global technology. There are many jurisdictions where such schemes would be possible.
[01:09:26] And clearly where we're in a world where I mean, just the velocity of experimentation and innovation around this is incredible and it's global. And it just these things do persist, exist around the world. Things will be certainly raised and challenged legally. But, you know, I feel like the the experimentation is absolutely worth it. And I mean, this is just a space where, you know, securities laws are just, frankly, incredibly outdated. They never contemplated these things and we'll have to catch up. But the answer isn't just to slam existing nineteen thirty three nineteen forty securities laws on this. It's really to you know, ultimately, you know, as I said many times publicly in the past, we need a new definition of what a digital asset is and what the interactions of it are. And that's that should be a policy goal for the United States and it should be possible for everyone.
[01:10:19] Yeah, and I was just going to add. That's absolutely right, Jeremy.
[01:10:22] And I was going to add that when these experiments are performed, they create the basis for in the examples of how to, you know, make adjustments to those laws. So they're very necessary experiments. I mean, even if they are performed by outside of the states.
[01:10:39] Yeah, absolutely. Well, look, listen, I we're we're at a little bit over nine o'clock, I just I just don't want one thing.
[01:10:47] Real quick on the second part of the question, I want I want it all try to go into the Howie Howie Tether stuff. But just on the question, I mean, I think it was going to be like crap, honestly. That is is is out there and that's OK.
[01:11:02] I mean, that's also true in a lot of other marketplaces, music and otherwise. And the experiments are helpful to weed through the crowd, but ultimately work on product experiences, even if they may infringe on on sort of untested waters with things like these securities issues, they need to happen. I mean, even things like boats and subs and have run afoul of discussions around what really are these bets are in customer mode, either being said, the streamers, but the experiments and private experiences will continue to play a lot of it. A lot of the content will look like crap. And and the you know, the best stuff will rise to the top, but also splinter into meaningful communities that don't have to be based on, you know, millions and millions of devoted to one specific gatekeeper. But the much more evenly distributed Nemil seen in the past.
[01:12:00] Totally awesome. Sean and Jake, this is a really fun conversation. Everyone who joined us tonight, this evening. Good morning. Whatever it is for you. Thank thanks for joining me here in The Money Movement Club and with this with this session and. Yeah, Jake. And try and look forward to keep it in the conversations going. And thanks again for coming out tonight.
[01:12:23] Awesome. Thank you for having me and guys keep up the great work educating about and.
[01:12:30] Absolutely. We've got a lot more coming up. All right, guys. Thank you.