Update on the NFT stuff (Patreon)

Hey everyone, as my NFT Twitter thread has expanded in scope and reach and longevity I've been approached by a number of podcasts, developers, and journalists on the pro-NFT/pro-cryptocurrency side of things and I have talked with a few of them. It's been valuable for me as a trial run of a lot of the ideas and framing that I would like to put into the video, which is coming along very slowly, and also a chance to be challenged on them. So in a sense these serve as a preview of what's likely to be in the final video.

The first I want to talk about isn't available yet, it probably won't be out until sometime next week, but it's an episode of Digitally Rare w/ Jonathan Mann and Matt Condon. Jonathan and I have been Twitter mutuals for years and I was invited on specifically for my stance as a skeptic. It was honestly a really good conversation, Jonathan and Matt are well spoken, I think they do a good job at explaining their perspective as people who are trying to do legitimate artwork in a space dominated by procedurally generated apes, and it gave us all some things to consider.

Edit: available now. 

The second, which chronologically happened first, was an interview with Justin Roberti at Benzinga, a smaller pro-crypto news site. I understand that a lot of you won't want to click that link for a variety of reasons, so I'll include my copy of the entire interview (including questions that didn't make it into the final) after my thoughts.

This was interesting because I think it's a sign of some things. I think the realists in the crypto market, NFTs in specific, are extremely well aware that it's a bubble, and the collapse of that bubble will be potentially catastrophic to their entire ecosystem, and as such are starting to engage in a bit of necessary tempering of expectations.

Honestly based on some of the recent movement, Discord pumping the brakes on their MetaMask integration and yesterday's report that Axie Infinity's payouts have sunk well below the minimum wage in Philippines, there's a good chance that things will, once again, shift dramatically before I can finish the video.

Cheers, everyone.

INTERVIEW

1. Dan - you do great content around film/production analysis. What led you to the world of NFTs?

A lot of my work revolves specifically around talking about film, but ultimately my job is to make stuff online. NFTs have become pretty difficult for online creators to ignore because they've been pretty aggressively marketed to us as a "revolutionary" new revenue stream.

2. When did you start investigating NFT projects on Discord? 

My investigation into the activity on Discord specifically started sometime in September 2021 after evangelists insisted that I just wasn't seeing the bright side, I wasn't seeing the community and the innovation. I joined several higher profile servers and wasn't really persuaded by what I saw. 

A lot of the culture was still extremely focused on the projects as financial vehicles. Even in the most established projects, ones that have been going for years, there's not really an underlying thing, these aren't fandoms in the way you would experience them around a game or a TV show or a book, the product is pretty insubstantial if not functionally non-existent. 

And of course just joining any of these servers immediately led to a deluge of spam for other projects, both in the servers' authorized "shill" channels and via cold call bots reaching out to everyone on a server list. It's tempting to say that this was a really flawed way to delve deeper, that "obviously" this would mainly lead me into less stable projects, but I got just as much spam for successful projects like Humanoids and NFT Worlds as I did for rug-pulls like Crypto Astronuts and Hood Punks. 

On the whole, if you just look at the pitch package and the sample product, there's very little material difference between a project that's gonna sell out 10,000 tokens in six hours and one that's going to become a trash fire as the project leader has a nervous breakdown and burns the mint three days post-launch after only selling 800 tokens.

3. Do you think it's possible to see what's really going on with NFTs as a cultural phenomenon without getting into the Discord servers?

I think if you only looked at Twitter and YouTube you could get a reasonable intuitive picture of what's going on, to the point that nothing would really surprise you, but you wouldn't really be getting a comprehensive picture. Things don't really hit YouTube or influencer Twitter until they've passed through some kind of general social filtering mechanisms. Discord chats, on the other hand, are a lot closer to the ground, chatrooms are a lot snappier as a means of communication. I wouldn't say it's a definitive look at the broader NFT community's values and norms, but it's a pretty significant one.

4. It seems that NFT projects are in the position of having to demonstrate ongoing value/utility to be attractive for buyers. Near-term they seem to offer community -- but you have seen some unhealthy behavior in these communities. -- Can you explain toxic positivity and cult-like behavior in these communities?

Speaking on those values and norms, there's an extremely pervasive resistance to any form of skepticism that ultimately manifests as a sort of toxic positivity. This is all part of a complex feedback loop. The projects, broadly speaking, lack any kind of substantial product, existing almost entirely as promises backed by nothing more than a screenshot of a roadmap and some sample PFPs. 

And, again, I think it's really important to keep in mind that goes for successful projects just as much as for rug-pulls. There really isn't any meaningful difference between a Party Ape Billionaire Club and a Betting Kongs, BK were never going to make a casino, even if they hadn't tanked, and despite the fact that they're running billboards in Time Square PABC is never making an MMORPG. Both claims are equally ridiculous, but one of the two made a huge pile of money. 

The primary product is ultimately hype, which is both insubstantial and fickle. Negativity, both internal and external, can have a meaningful impact on the willingness of people to buy into a project, and if buyers are tepid then you won't get a runaway sale, and if you don't get a runaway sale then that's going to turn off buyers even more. 

This creates toxic positivity where doubt is aggressively policed by both project leaders, who have an obvious financial interest in hype since their big payday is the minting rush, and community members themselves, who have a speculative financial interest in hype. 

While all of that is logical in the pure sense that there's an effect that can be explained by an incentive, the output is effectively a self-organizing cult. Doubters are ostracized so aggressively that it chills all conversation about a project's actual viability. I've been chided and banned from spaces purely for asking questions like "has the team ever shipped a video game before? Which one?" KwyptoKados banned me extremely fast for mentioning that it was troubling that they'd ask for $2.5 million to make a video game, a budget that puts you on par with a serious mid-budget indie game, but only list the developer as "Sam". 

Questions that would be utterly banal in any other investment forum, what has the team done, what assets do they have, why should anyone believe they can deliver on their promises, are treated as hostile. And the frank reality is because there aren't answers. Party Ape Billionaire Club is just as vaporous, and yet they succeeded, so there's incentive to enforce the collective delusion. 

The end product is a community trained to ignore warning signs and dismiss criticism. And the results of that are obvious: there are still people convinced that somehow someone is going to pick up the ashes of Evolved Apes and manifest the rest of the project, a belief based on no observable evidence.

5. I believe you have followed a few projects from launch to implosion (whether fraud or incompetence) -- can you give us a few anecdotes around the worst kind of atmosphere? Are the rug pulls obvious or are they working even harder on their sincerity game?

This isn't the most dramatic, but probably the worst atmosphere I've seen is the most pervasive, which is the whole culture around "paper hands" as an insult for anyone who cuts their losses and bails out of a project. It comes up constantly even in successful projects, so it's particularly depressing to see it applied so aggressively in projects that are visibly floundering. 

On the dramatic side, the project lead for Time Travelers had a nervous breakdown and almost rugged the project by accident, the DIMEZ Discord is getting kinda toxic as the devs push out "Gen 2" with Gen 1 being barely sold and still available for minting, and despite being rugged weeks ago the Crypto Astronuts general chat is still semi-active with people trying to brainstorm a way to recoup any of their money. That third one is particularly heartbreaking, since the $300 minting cost meant a lot of buyers dug pretty deep just to mint one, and then panic-bought the floor in a sunk-cost frenzy as they watched the project fail. 

Honestly, though, enough have failed that there's basically a script at this point for how to avoid being branded a rug pull, and that's to create a slow death. 

The basic formula is this: the project launches their minting but after 48 hours has sold less than 20% of their stock, new mintings have slowed to a crawl or stopped entirely, and the secondary market floor price has fallen below mint cost. The project leads burn the remaining hashes and say they're going to take a few days to "reconsider the direction of the project." They come back with a dramatically scaled back proposal, frequently with a name change, and insist that this will now be considered Phase 1 of the grand plan, and everyone who bought in is a founding member of an elite circle, and they just need to hodl until Phase 2. There's some intermittent communication on how phase 2 is shaping up, with attached unrealistic promises about Phase 3, some sneak peeks, and maybe even an airdrop of something largely irrelevant and worthless or a purchase of another NFT of dubious quality for "the community chest". Gradually updates transition to just being promotion of other projects and general communication slows with leads disappearing for longer and longer spans until it becomes sort of obvious that they haven't logged in for a couple weeks and are never coming back. At this point if the website disappears it's officially branded a rug pull, but if not then forum members mill around in confusion with some declaring it a rug pull while others insist that they're just too busy on the next phase. Around this point, since moderation has laxed or ceased, chat sees a steady spike in "sorry this didn't work out, but [link to other project] is really legit, DM me for details."

6. You have expressed concern abt using NFTs to keep records -- are they really at any security risks w blockchain that we don't have with other forms of digital record keeping?

A core provision of data security is that no matter how you choose to obfuscate data the best practice is to limit access in the first place. Giving any anonymous validator a copy of the entire database that they are free to tinker with and poke at on their own time without oversight is a terrible idea, no matter how entries are hashed and obfuscated. The only way around that is to limit who is allowed to be a validator, and if all your validators are hand-picked, vetted, and trusted then the "blockchain" aspect of your database is little more than a buzzword. 

Blockchain as a whole is already a privacy nightmare waiting to happen. Using Ethereum to store medical records only benefits Ethereum's trade value, it doesn't help medical professionals or patients. Anyone honest about the actual needs of sensitive records keeping knows that it's an awful idea, but crypto enthusiasts like to imagine that the very specific resilience of blockchain and decentralization to man-in-the-middle attacks and partial offlines are blanket synonymous with security. It's a suggestion motivated by pure ego; never trust anyone who can't be honest about what their tools can't do.

7. You expressed some pretty valid concerns concerning NFTs as fund-raising -- what do you see as the major pitfalls?

Biggest pitfall of NFT fundraising is that you're dealing with an extremely volatile market populated primarily by people who are going to pay lip service to the idea of community while evaluating your project first and foremost as a financial vehicle; it's a whole new patron class that you need to appeal to and their tastes, frankly, suck. 

The secondary pitfall is logistical: setting up a sophisticated token and smart contract (or series of smart contracts) is extremely intricate work that requires hiring a specialized programmer. The systems are not intuitive, and even for experienced developers the idiosyncracies are pretty substantial. It's a huge barrier to adoption and, potentially, a massive additional overhead cost that is completely divorced from the actual substance of your project. 

Basically you're inheriting all the regular pitfalls of competing in the attention economy, all the same hurdles that you'd face launching an ambitious Kickstarter campaign, with some whole new problems layered on top. There is, undeniably, a lot of cash sloshing around in the ecosystem, which makes it tempting to chase, but NFTs in and of themselves do nothing to overcome the very analog problems of getting the attention of the people with that cash.

8. Do you see any useful role to what many are calling the vanguard of digital ownership with NFTs?

Not particularly. I frankly see it as the vanguard of a future version of the web that is less accessible, less free, less interesting, and substantially more expensive. I see it as the vanguard of a million paywalls and oppressive "code enforced" DRM schemes. I see tremendous blind spots in a community that has spent so long focusing on the hype of an untenable fantasy Metaverse where they're the ones cowing corporations with immutable ownership guaranteeing their ability to resell video game horses that they've failed to consider that the "enforcement of ownership" can and will be used against them if and when corporations decide to leverage their power in the space. A lot of focus on "decentralization" as a panacea, very little consideration of power as an actual dynamic.

9. What is driving people to this new form of ownership in a time of historical hardship and economic disparity? Where would you have people focus their energy (in a time when people are clearly looking for something to believe in)

The driving forces are economic disparity. The wealthy and tenuously wealthy are looking for a space that they can dominate, where they can be trendsetters and tastemakers and can seemingly invent value through sheer force of will. This is, IMO, the blindspot of many casual critics. The fact that tokens representing ape PFPs are useless, yet somehow still expensive, isn't an overlooked glitch in the system, it's half the point. 

It's a digital extension of inconvenient fashion. It's a flex and a form of mythmaking. And that's how it draws in the bottom: people who feel their opportunities shrinking, who see the system closing around them, the casualization of work as jobs are dissolved into the gig economy, and want to believe that escape is just that easy. 

All you gotta do is bet on the right Discord and you might be air-dropped the next new hotness. It could be you plucked out of the crowd on Rarible and bestowed a six figure price by an elusive Saudi music producer. Get a BAYC in your wallet, hodl like a good diamond hands, and enjoy that yield. All you need is $5000 in seed money and you can buy a Farmer's World milk cow, and if you milk that cow every four hours, day and night, for two weeks, why there's all your money back right there and now it's pure profit (minus, naturally, the overhead of all the WAX you needed to stake, the barn you needed to buy and build, the barley you needed to purchase and grow, the food you needed to buy to refill the energy you needed to milk the cow, build the barn, and grow the barley, plus you actually need to cash out which isn't getting paid, it's quitting). 

The whole ecosystem, from OpenSea fantasies for starving artists to the buy-in for Play to Earn games, it's the same hollow pitch as MLMs. It's LuLaRoe, but everywhere you look people are wearing ugly-ass ape cartoons.

10. Anything you'd like to add?

The key distinction, ultimately, between a Party Ape Billionaire Club and a Crypto Astronuts is that PABC was already flush with cash and able to manufacture hype with high-priced giveaways and expensive advertising.

Follow Ups

11. you already explained about joining discord servers and how you got into this investigation -- but for the sake of a strong end to Act 1 -- what was the moment (large or small) where you thought "fuck these nfts I'm going to make some content abt this"

Honestly the tipping point for me, the moment where I was like "screw it, I've gotta talk about this" was the night I got invites to NFTits, MagicMarbles, and DIMEZ all in the span of an hour, all via bots lurking the Cool Cats Discord. I'd already been joking about the transparent bubble economics of the procedural PFP projects, but procedural renders of a marble that anyone new to Blender could build from a tutorial in less than an hour broke me.

12. what don't normies get abt NFT bros? is there a good reason people should pay attention -- or is this going to hit a relatively small subculture?

I think the thing that normies don't get about NFT bros is their dedication, the staggering volume of capital they already control, and how deeply rooted they are in the culture of the people who operate the platforms we all use every day, and that alone is a good reason for people to pay attention. They have a lot of money and a lot of clout that they can use to try and make Fetch happen. 

The leadership at Twitter and Discord, to use two very current examples, are heavily vested in crypto and thus the news cycles generated by them rolling out Ethereum integration, and the impact that has on Ethereum prices, will do more for their personal wealth than anything they could do to actually improve their platform. Like "pivot to video" in 2010 the rest of us are going to have to deal with that whether we want to or not.

13. since your POV in this is as a creator, what advice do you have for creators considering NFTs?

My advice for any creators considering NFTs, I'm not going to say "don't do it" because even if that's the essence of my advice it's too trite and dismissive on its own. So really try and cut through the hype and get a good look at the nuts and bolts. What are your minting costs going to be, where are you getting your smart contract from, what utility are you going to promise, what parallel infrastructure are you going to need to set up and maintain, what are you going to do if something breaks? 

If you're selling the most bare-bones NFTs possible with no strings attached, what are the odds anyone outside your circle buys it? Will it provide a meaningful shift in your business model, or are you just buying into someone else's plan to monetize your audience? Are you going to end up on Twitter tearfully trying to explain Kraken to your followers hoping someone has the heart to jump through the hoops because you've sold nothing and have paid hundreds of dollars in Gas? Does this actually solve a problem that you couldn't solve with your existing tools? 

Succeeding in NFTs is just as hard as it is everywhere else on the web, it's not magic, it's not inherently more profitable, and the overhead and maintenance costs, in both cash, energy, and attention, can be staggering. You risk burning your audience on the raw PR of attaching yourself to a toxic hyper-capitalist subculture. You risk accidentally rugging your own project when you realize that trying to fulfill open-ended promises like "make a DAO" or "set up a community fund" are making demands on your day to day work that consume your time and interfere with your actual product. You are potentially exposing yourself to a whole new plane of liability with regards to rapidly changing tax law and financial regulations. 

There's a lot of hidden costs to consider, and I think regardless of ideological factors, regardless of the big picture of what this whole exercise aims to accomplish, there's enough purely pragmatic considerations that for most creators the answer is "no, don't bother, it's not worth the effort."