Long Take: Financial Mythmaking with $200MM of Loot NFTs and their growing world
Hi Fintech futurists --
This week, we cover the following:
Thesis: We discuss the top-down and bottoms-up approaches to innovation and project building. For the former, we reference Australia’s draconian surveillance laws, and the integration of US driver’s licenses into Apple’s wallet. For the latter, we dive into the Ethereum-based Loot project and its incredible derivatives, $500MM token, and $200MM of volume. Last, we conclude by highlighting the role of creators on the coming wave of Fintech.
Topics: identity, wallets, regulation, government, NFTs, metaverse, gaming, capital markets, creator economy
Tags: Apple, Australia, DocuSign, Ethereum, Loot, Step
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One door closes and another opens.
Powerful macro technological organisms cement themselves as sovereign infrastructure, codifying surveillance and shepherding the populace. Who will lift the fog? Who will bring back an open sky? Such a job is for story tellers and myth makers, surfing creative fashions using the timeless narrative arcs of our collective imagination. A fantastical world of decentralized machine creativity, shepherded by community, is visible on the horizon beyond the regulatory clouds.
Sounds lofty and abstract. Sounds academically insane.
The Top Down Way
Let’s start with Australia, where an Identify and Disrupt Bill has passed both houses of government. In order to combat perceived cyber threats, the Australian Federal Police and the Australian Criminal Intelligence Commission are granted new powers to (1) add, copy, delete, or alter data on devices, (2) take control of accounts and lock out users, and (3) overcome security features like encryption — all of which can be done without due process.
This legislation is probably in response to *something* that requires a response. But it is clearly far, far out of line with the right to digital privacy, and any notion of self-sovereignty. It is the maximal view of the nation state in relation to its citizens, the view against which Snowden attempted to revolt. You may think that you, as an individual, are engaging in some set of activities of your own. But actually, you are a regulated appendage to be mediated, and technologies that frustrate such mediation (i.e., encryption) are to be broken like so.
Imagine now that there is one single corporate entity which holds your entire identity, which can be turned on and off on the whim of a Kafkaesque judicial or executive body. Imagine the Black Mirror episode or Chinese reality of your social credit score determining access to services. Surely this wouldn’t happen? Not in the West!
Apple has launched the capability to incorporate state IDs and driver’s licenses into its mobile wallet. The wallet is already a powerful payments application for Apple, and is also a default location for transportation tickets and credit cards. The company is adding Arizona and Georgia IDs into the application, and thereafter Connecticut, Iowa, Kentucky, Maryland, Oklahoma, and Utah. The TSA (i.e., Transportation Security Agency) plans to accept these digital replicas for airport security.
There is pretty cool technology involved, matching the scanned picture with the phone’s facial recognition capability. Apple is also well regarded for its privacy-first stance and strong device encryption, though not without critics. Still, if the information is centrally stored and served, even if encrypted, it presents a vulnerability. And we can clearly see the connection between proving your identity for airport security, and proving your identity for the consumption of financial products.
If this identity feature is adopted — and we hope it is — then it can underpin bank account opening, digital legal document signature, KYC/AML, underwriting for lending and other risks, investments and trading, and so on. And if it is easy to use, then it will end up being used *a lot*. Compare scanning your face or thumb into an iPhone to implementing the DocuSign PDF signature flow.
In this way, Apple the $2.5 trillion public company becomes a public goods infrastructure provider. We deserve the right to access our identity, and not to be excluded. It is also the individual, and not the permissioning regime, that should be prioritized in order to pursue human dignity. We should not be mere subjects of process. Rather, process should stem from the endowment of our normative rights.
Let’s put this more directly.
Top-down systems are getting enormous power, and amplifying it by technology. One could say that this is done willingly through the social contract. Don’t we elect our representatives? It’s fair to say that many people have low alignment with our current political process. But whether or not we are aligned with incumbent politics, top-down systems are still getting incredible technical oversight of our daily lives. And the disconnect between strong oversight and a lack of faith creates tension, friction, and fragility.
The Bottoms Up Way
A radical thing happened last week. It’s called Loot.
About 8,000 non-fungible tokens (NFTs) of lists of items were released into the wild. Each one is a list of words on a black screen with some underlying code that captures the items listed. An example item would be “Gold Ring” or “Divine Robe”. These words didn’t do anything. On release, they were not part of any particular world, game, or cinematic universe. They were abstract primitives that held meaning for people, watched by a global community of developers.
A week later in human time (i.e., several crypto years later), the minimum floor of a loot NFT is 12 ETH / $50,000 — about as much as a Damien Hirst’s The Currency— and there has been over $200 million in trading volume. In both cases, the value of the digital object comes from social narrative and consensus.
There were immediately copycats and extensions. Since 8,000 is not a very large amount of people, and since this is supposed to be a participatory game, “more loot” was created on both Ethereum and Polygon. Off-brand versions like Bloot and Dope Wars Loot sprouted up. Solana and Binance saw their own spinoffs. Synthetic loot derived from your wallet address, and not even requiring any NFT minting was conceptualized and revealed.
In-game currency called Adventure Gold ($AGLD) materialized $500 million into existence. Its purpose is to be used in a world that isn’t yet here. It is now being held, negotiated, and governed by thousands of people.
Engineers and artists caught onto the idea and began to build the virtual world implied in the software. They began crafting inventories and experiences. They spun stories of monsters and journeys. These derivatives were mostly available to loot holders only, functioning like a high ticket price to an open book.
They used machine learning on digital objects built in previous games, thought up of ways to split out the items into component parts, and hallucinated into existence meaningful new visualizations. Everyone wants to play.
A mythology emerged. And the mythology began to attract creation, which in turn is gobbling up attention and outputting financial value. Because the starting NFT primitive — just words on a page — is so basic, the things we can spin from it are legion. In fact, an endless amount of permutation can come from the same ground truth.
Meditate for a moment on this insanity.
Normally, a team would have an idea, test it against the market, build it out, and deploy specific answers to some problem pattern they see in the world. Yet here, the problem pattern speaks itself out loud, summoning a community of financial and product managers that cohere multiple solutions that compete with each other in some amorphous capitalist marketplace of concepts and money.
We thought that virtual items would leave existing video games and become digitally persistent — an expansion out of Fortnite or League of Legends. Instead, the digital objects are born outside any particular designed experience, and then generate experiences around them by evolutionary extension. This is the difference between a well-designed wooden bench, and a flowing garden.
Takeaways for Financial Services
We couldn’t pick more different examples, but they show you two different ways of approaching the world. The first is obsessed with building the perfect space shuttle or cathedral. This second one, the organic emergence, speeds everything way, way up. And it orients growth from an ancient, powerful place.
We may think that games are toys, or that fairytales are for children, but tell that to everyone who saw the Marvel films. Which means, to everyone!
Myths are the stories of personal transformation and change that culture tells itself. Fairy tales are the derived algorithms of wisdom distilled to an essential core. The adventure, the set-back, the promise for redemption — all of these are various molds of a Hero’s Journey.
What is happening with Crypto right now is that the atomic parts of myth are being tokenized. They can then be mixed, remixed, and shaped to create personal financial stories that holders of these objects experience through interaction with the ecosystem. Mass-customized personal meaning is emerging in the decentralized world.
If you work in traditional Finance, this is probably way too much weird stuff. But listen. Here’s the secret. The next set of Fintech and DeFi founders is coming from a place you don’t expect or understand. We are used to needing deep payments infrastructure knowledge or bank-licensing knowledge to build financial products. But that’s just us finance nerds, and this is becoming increasingly open-sourced. Our customers generally don’t love the banks we make, nor enjoy our sprawling lending superstores. Fintech founders talk of behavioral economics and gamification, and add content to LinkedIn. But deeper change is coming.
Already Fintech is beginning to cede ground to content creators. If you look at some of the emerging bank brands like Step, you understand that the underlying bank stuff is far less important than the consumer psychology of its customers. Here’s our conversation with CJ MacDonald, CEO of Step who really narrowed in on bringing TikTok influencers and celebrities to bear on the financial brand.
What happens next though is that culture makers begin to weave financial stories. This tokenization of myth (i.e., Loot) was conceptualized by Dan Hoffman, the founder of Vine — a video app which was primed to become TikTok before Twitter mishandled it. Dan is not David Solomon, the storied CEO of Goldman Sachs. But it is from his corner of the world, and those like him, that we are going to see the next chapter of financial and economic organization come forward.
While finance sells a hammer and its features, the smart creators sell a story of Thor and galactic ascendence through the magic power of Mjollnir. How can you start to tell such a story today?
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