Cătălin Ioan Roman - Beyond Floor Prices: Rethinking NFT Ownership

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Hello guys. Thank you for having me. It's a pleasure to be here today. So, let's just take it to backwards to the Ethereum community. Um then talk about some digital stuff out there.

I would say and that would be NFTs of course. I don't know what it NFTs represent for some of you, but for me it represents open access I would say. Which makes it quite nice that I can be here talking about this subject uh uh today. So, um yeah. Let's let's just dive right into it.

Um I would say that the during the couple last months, if not years, we built a lot of infrastructure, but not so much about not so much meaning. So, that's the tension I would like to talk about today. Um So, um for that matter, um I keep coming back to one important event that has happened I would say in the last couple of months. That being that CryptoPunks have entered the Museum of Modern Art collection in New York City. Um permanently by the way, which is quite an interesting uh event for that matter, because it place it places them alongside the Warhol collectibles out there.

Um so, for that matter, I would say that institutional legitimacy has been earned around such collectibles. Uh but at the same time, we also experienced the 95% of uh collections actually crashing. Effectively um having almost zero trading volume. Um So, these two things are both true at the same time and it's a This is a basically the um the the problem I want to talk about today. Um but uh before I jump into what has been going wrong in this market, I would like to also look into what's the opportunity out there for for this uh for this uh NFTs as we call it uh

collectibles. Um

Right now, the market cap of the NFTs is it's around $2.7 billion, um um which is some serious numbers, right? Some serious numbers um out there. But uh when we put it in perspective, I think that's not much if we, for example, look at the um total addressable market for that matter, I would say um let's look at the global collectibles market. Um I would say that there is a lot of potential to tap into that um that uh number as well.

Um Also, the liquid comparables in this case, uh the our sales, sports cars, trading cards, especially CS2 skins, it's a huge market. It's uh much bigger than the NFT uh collectibles um which has a lot of culture behind, I would say. I'm not sure if I'm if I'm to to think about uh few years in the future, if I should uh if for example, the CS2 skins are going to be still holding this massive value because uh yeah, it might be that a lot of the players will move to something else. Uh whereas I would argue that NFTs on Ethereum uh will be forever for us and it's a big culture behind uh this uh this asset. Um So, we had CryptoPunks and some other uh collectibles out there which arguably hold a lot of value.

Um but uh most people never got the chance to actually get into those and the ones who did mostly watch, I would I would say. So, what has happened then? Um well, they came up with a solution for allowing more people to get um exposure to this kind of assets, right? Um and the idea behind it was pretty pretty basic and pretty simple. For example, CryptoPunks are quite expensive uh for most of the retail investors or collectors out there and uh the way to allow them to get exposure is to fractionalize these in ERC-20s um tokens.

Basically, democratizing access and the facility facilitating liquidity at the same time. So, I would say the pioneer in this uh fractional market was the Sarah fractional.art, uh the previous name they had. They were actually Paradigm backed and they got investment over $20 million to play around with this uh with this uh solution, which is quite an interesting thing um that has happened. But unfortunately, the experiment and the product kind of failed along the way also because of the market uh uh market um conditions at that time.

Um so, they are not operational uh since then. Um we also have a couple of other ones like uh notably NFTX, which basically has a similar concept but uh through once again through ERC-20s of fungible tokens. Once you fractionalize uh um those items, you lose a lot of value because the uh the values of non-fungibility are basically lost with this kind of uh uh transformation. And we have also um um flooring protocol, afp.io, I believe, which launched in 2023, around 2023 2023, um which basically promised people a similar thing, but they have functioned more as a DeFi kind of uh options game.

Um it was quite quite difficult to to get around their product, and um it was not necessarily um yeah, um allowing people to to collect these valuable items. Um they flattened the art, they lost the meaning of what it means to to basically be able to own this this items. So, yeah, a lot of things have went wrong within the fractional market, I would say. All of these platforms that have played around they're not operational anymore. So, um not much has happened since then, especially because of the bear market overall, which means that uh yeah, it was a bit it was a bit quiet on the on the front down there.

Um so, yeah, once again, the point here being that uh they completely missed the point, I believe, because essentially, when you collected when you bought a ERC-20 from the underlying collection they have fractionalized, you don't own any of their assets, you just uh own a token, a number pegged to the floor price of that collection, essentially losing the rarity, the story, the provenance of it. Um once again, just a token replaced uh replaced uh by a number. So, um I would argue that fractionalization collapsed these unique unique cultural signals and artifacts into a fungible financial instrument. Um and ownership should feel like something here. Um fungibility made it feel like nothing, I believe.

So, uh for that matter, as I told you, not much has happened since the since the collapse of the fractional market. And but um alongside, I would say last year or so, no, September, October last year, we had a new interesting experiment coming along, and they basically had a interesting concept to work with. Uh as they call them stretched tokens, I'm not sure if you're familiar with them, but essentially how it works is that they would auto buy um the cheapest CryptoPunk, for example, from the soft base, and release it with a at a 1.2x, and then burn the profits. Uh It actually the token surged from around 1 million to over 250 million dollars, which well, you could say it was a success, but um well, they call them the flywheel actually, the flywheel concept, but look what has happened to their tokens.

They actually crashed quite hard, so I'm not sure if the flywheel still stands here. I would argue that they are acting more like a boomerang or something like that. So, yeah, um once again, they I believe that they missed the point of what it means to fractionalize this this collectibles. Financial incentives, once again, they are not equal to cultural incentives. So, I would argue that no one that that held Punkster token felt closer to the collection, let alone felt closer to to feel closer to an specific item for this collection from this collection.

Um So, let's look at what it means or what it Yeah, what it it would mean to basically try to to preserve the cultural aspect of this assets as much as possible. So, during the last year or so, um let's talk about Pudgy Penguins because I believe this this collection is quite a good example of what it means to preserve the the culture. Um they went all around and they built a lot of a lot of things around their their their uh Yeah, product in this case. So, they they partnered with Walmart. They sold a lot of toys and they had so much social media exposure at the same time.

And they believe uh guess what? They managed to surpass Bored Ape Yacht Club collection which has been established as number two collection for quite a while. Um And their user, of course, loved it. Um so, uh Yeah, um well, this is actually a pretty good example of what it means to to uh work on that IP loop for for your NFT collection, of course. Um and as I mentioned as well, we have the the CryptoPunks which makes it a pretty good example a pretty good case for uh looking what it means to work on the cultural aspect for uh this assets.

So, the CryptoPunks arc, as I call it, of course, uh what has happened uh quite interesting is that the Yuga Labs transferred the CryptoPunks IP for for the Infinite Nodes Foundation, a nonprofit digital art stewardship. Uh these guys have been uh quite uh quite a long time in the game and they know they know what they do in this strategy basically uh goes ahead for decades. So, yeah, well, um that's simply put in words here is that the belief that there is this beyond just obscure NFT collection. This is art. This is can be categorized as collectible and it's here to stay.

But of course, we are a lot of the people still cannot own this. This is a paradox. It's quite hard to fractionalize these things and perhaps it's not even what we should do um because um yeah, we will look at what's the opportunity out there besides the CryptoPunks or the most uh yeah, hyped or the most important collectibles uh out there in the NFT market. So, um as I told you, um these two case examples kind of uh showed us what it's possible when we preserve the cultural aspect and uh unfortunately or fortunately, uh it's just that we cannot apply the same external forces and the same concepts to most of or the the rest of the collections out there. So, the meat here hollow as I as I tried to to explain it here is that meaningful meat here ownership is uh a roading for a lot of collections which are still quite valuable even during the bear market and um we do not require institutions to require them and we do not require a sophisticated DeFi or IP loop such as uh Pudgy Penguins case to for them to become uh valuable in the eyes of the especially of the Ethereum community but also of uh external uh externals out there.

Um so, the real question comes um um I would say that the culture first um concept has never been tested on on grails out there or one-of-one art uh NFTs for that matter as well. Um, so how do we give meaning and value to the to the meteor um and collections out there without these external forces? I would like to introduce to you a interesting concept to think about. Um, this would be the Lindy effect. So, what does it mean?

Contrary to us humans um the more something has uh has been going around uh the more it's likely that it's going to it's going to stay there. It's going to survive. So, um um for that matter, we have seen that um a lot of these uh collections have survived the bear market and they still hold quite some value uh even without many eyes looking at them at the moment. Um, and the thing is that we have to expose those now and build a culture that preserve their unique characteristics. So, um what I would say given uh with the Lindy ef- uh effecting in our minds is that what we need next is a model that lets more people participate in in the in these assets whose value um yeah compounds with time as we go further.

So, also very important here without stripping what makes them unique. So, the non-fungible uh qualities and opportunities that they hold. And guess what has happened also during the last years or so with the platforms that basically are you could argue the gatekeepers for for people. Um yeah, well, uh we had Blur of course. They were just very specialized for for trades there's for bulk listing and that kind of stuff engineered only around those matters.

Not really um yeah, not really suitable for collectors. Um yeah, for them culture was never the point only uh trading volume. And uh OpenSea has also uh a couple of months ago has launched the OpenSea 2. So, they now support the nine chain 19 chain uh token trading uh uh with a lot of rewards uh these kind of things um recovering market share from Blur from Blur actually, but um yeah, um this this trading volume not doesn't come necessarily from uh from NFT trading anymore. It comes from fungible tokens, all sorts of fungible tokens out there.

So, they kind of went away from from allowing people to explore NFTs uh collectibles out there and they recognized that in order to survive and go uh reach their targets, they have to allow uh trading any other token for that matter on their platform. Uh we of course we also have the royalty royalties dilemma in place which kind of adds a bit more pressure to the whole aspect. I'm not going to go too deep into that that for for the for this talk. And um one another uh platform that I would like to mention this case and the last one that was has has been active of course is the Magic Eden. Uh they actually recently announced that they don't even support Ethereum NFTs trading anymore.

Uh so, they completely just left that side to to others and that being OpenSea in this case. So, um I hope that I created somewhat of a clear picture of what has has what has happened with the with this market during the last years. Um And if we are to actually continue um yeah, building around this this asset class, what should we do? Should we optimize for trading or for collecting and cultural connection? I would argue that we should go full in into cultural connection because that's what currently missing for from these platforms.

Um So, the new direction I would say should should basically take some things into account quite seriously. Um the real question from here is not if fractionalization versus whole ownership should be the focus for these assets. It's where the model preserve the what makes these assets unique. So, the non-fungibility aspects, qualities, and properties that they hold. Um So, for whatever we build next, I have three non-negotiables non-negotiation negotiables.

Sorry, I cannot really pronounce that the word. We have access. We have to preserve access. We have to preserve liquidity, of course, and the uh cultural provenance the preservation of that, of course. Um together, never as trade-offs as we have seen especially with the other platforms, especially the fractional platforms out there.

They always compromise one or two in the benefit of the other. Um so, yeah. I would say this is the the sacrifice that never should have uh never should have been made. So, yeah, for that matter, I also looked at Courtyard Proofpoint here. For example, yeah, they see blockchain as infrastructure for physical Pokémon cards.

They are categorized as collectibles for quite a while, right? And they are quite hot right now, actually. They Yeah, they do a lot of trading volume. I'm not going to go into numbers here. But, yeah, what they say is that they see Web3 as a tool and not as a destination.

And I kind of like that because we should try to have a similar approach here. We should not look at the trading infrastructure or any um technological capabilities of their as the last um yeah, point what about what we should do with this with this assets, but more like as a transition point. And allow people to basically be exposed to this assets without realizing the technological capabilities behind what it means to trade fractional NFTs. So, um yeah. As the last thing, I would say that we should build the missing layer.

I think there is a missing layer and on-chain collectibles are valuable. And even though they're lacking behind other collectibles in the market, they going to eventually catch up one way or the other. So, ideally, we also we are placed quite early for that for that journey. And as we have seen, especially with the other fractional platforms, the tokens without culture fell. So, Uh, tokens out of the whole NFTs do not hold any kind of value in my opinion.

Um, financial engineering alone creates a lot of friction. So, yeah, for that matter, fractionalization strategy tokens as we have seen and ecosystem coins they they promised a lot of things to to users out there, but they haven't solved at all any kind of yeah, uh, strategy value which is still being uh out there. So, um yeah, and unfortunately, we have also the overall market focusing on financialization, OpenSea too. Blur not so active anymore, I would say the OpenSea holds the majority of the market activity at the moment. So, yeah, they're they're completely going towards traders at the moment because well, this is we have been we're been through through a NFT bear market.

So, uh um, they they have to to do their thing. No no hard feelings out there, but uh, I would have liked or loved to see them being more uh uh, focused on what it means to actually talk about uh um this collection from different perspectives from the collector's point of view, from the artist's point of view, and from the retailer's point of view to allow them to basically go in and explore this market because I think it holds a lot of value. It's very is one of the most interesting uh um, cultures tied to the Ethereum ecosystem overall, at least in my opinion. And as we progress further uh, we will figure out that yeah, they they are quite iconic these items. Um, and they are here to stay.

So, for that matter, I'm actually building the next layer allowing people to get exposure and learn more about what it means to interact with these items in a beautiful nice way. We're doing that at boost.art. This is the product I'm building together with my team. We will be hopefully launching in the upcoming months.

So, I would love if the audience will actually give us a follow on Twitter or connect with me privately as well and talk about what's missing, what is their opinion of course from their point of view, and if they want to help and if they believe in the mission, they're more than welcome to to come along and and basically just take NFTs back to the house. Thank you so much for your attention.

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