Bits: NFT Infrastructure

Who will build NFT infrastructure with meaningful network effects?

Trying out a shorter format here, let’s see how this goes.

The explosion of NFTs over the past two months has fascinated me. When we first wrote about them back in 2019, we thought NFTs would become crypto’s bridge to broader consumer adoption, but we thought it would come via gaming. We looked to the existing high utilization of in-game purchases like Fortnite skins and saw a parallel rise in e-sports. While that market has continued to explode and feels ripe for such change, we underestimated the delay from gatekeepers i.e. the incentive structure for these game developers to keep taking a higher % cut today by keeping goods in a closed marketplace.

Kleiner’s 2019 Crypto Thesis

I still believe that gaming assets will eventually exist in an open, interoperable marketplace which grows the pie for all, but that will take time. Specifically, it will be a feat of growing consumer NFT awareness and accessibility to a place where gaming platforms are forced to offer an open option, or forge a new business model that makes it more attractive for them upfront.

In the meantime, art, music and sports have stepped in as the guinea pigs of NFT experimentation. There have been incredible success stories here — digital art like Cryptopunks and Beeple’s The First 5000 Days. Similarly, NBA Top Shot and Sorare have done over $500m in sales so far, touching over 350k owners.

Two takeaways:

  1. Traditional brands can easily port their audience (sports, musicians) and bridge the gap of technological complexity.
  2. Artists have no gatekeepers and are inherently distributed / fragmented, so we can see an influx of talent and content into a new space overnight.

While it seems like the NFT fever is breaking, there will be lasting interest and development in the space from here out. NFT infrastructure is getting an influx in capital, which will act as the foundation of the next leg of growth. At the same time, much of this infrastructure is commoditizable in the extremes — NFT creation, wallets, etc will be fairly standardized building blocks in the future.

Who will build NFT infrastructure with meaningful network effects e.g. social dynamics to showcase and share, ecosystem integrations for NFT-based collateralization, tools to enact and monitor dynamic NFTs that change as users collect more or complete IRL challenges? NFTs will bring social interactions and gamification to the identity layer. These second-order use cases are just the tip of what will make NFTs lastingly exciting, and I’d love to chat with anyone building here.

All things fintech, consumer, crypto. Currently @kleinerperkins ex @blockchain, @harvardhbs @jpmorgan @quartethealth @segoviatech @cornell @stuyvesanthigh.