Devin Finzer, co-founder and CEO of NFT marketplace OpenSea, talks all things non-fungible. Check out the whole show to hear Devin answer the following questions:

First Half: Breaking Down NFTs

  • Why did he become so interested in NFTs ? 
  • What is an NFT? Why have NFTs become so popular recently? 
  • Who is creating NFTs? Who is purchasing NFTs? 
  • Are we in an NFT bubble? 
  • How is the NFT ecosystem going to evolve over the next few years? 
  • What are people purchasing when they buy an NFT? 

Second Half: OpenSea Q+A

  • What is OpenSea? 
  • How will OpenSea maintain its competitive advantage in the open-source blockchain ecosystem? 
  • How does OpenSea make money? 
  • Are artists making money on OpenSea? 
  • How is OpenSea planning on integrating with layer 2 solutions on Ethereum and other blockchains? 
  • How do royalties work on OpenSea? Why are they hard to enforce? 
  • What can be done about content being minted on OpenSea without an artist’s permission? 
  • What issues in the NFT world still need to be resolved? 
  • How is OpenSea handling the environmental concerns surrounding NFTs? 
  • What’s next for OpenSea? 

Thank you to our sponsors!

E&Y: https://ey.com/globalblockchainsummit

Crypto.com: https://crypto.onelink.me/J9Lg/unchainedcardearnfeb2 

Kyber Network: Dmm.exchange

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Transcript

Laura Shin:

Hi, everyone. Welcome to Unchained, your no hype resource for all things crypto. I’m your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and, as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. Follow Unchained on Twitter @Unchained_pod, where you can find all sorts of content ranging from my weekly newsletter to updates on my upcoming book and a whole lot more.

EY:

Today’s episode is sponsored by EY Blockchain. Ernst and Young is committed to supporting integration of  the world’s business ecosystems on the public Ethereum blockchain.

Crypto.com:

The Crypto.com App lets you buy, earn and spend crypto, all in one place! Earn up to 8.5% interest on your Bitcoin and 14% interest on your stablecoins – paid weekly! Download the Crypto.com App and get $25 with the code “LAURA” – link is in the description.

Kyber Network:

Kyber’s Dynamic Market Maker, DMM, is the first DeFi protocol designed to adapt to market conditions to optimise fees, maximise returns, and enable extremely high capital efficiency for liquidity providers

Laura Shin:

Today’s guest is Devin Finzer, co-founder and CEO of OpenSea. Welcome, Devin.

Devin Finzer:

Thanks so much for having me, Laura. I’m a big fan of the podcast, so it’s really an honor to be here.

Laura Shin:

Great to have you. Why don’t you tell us the story of how you got into crypto and came to found OpenSea?

Devin Finzer:

Sure. I got introduced into crypto in 2017. I followed Bitcoin peripherally before that, but I suppose I was a little bit of a late adopter. Although sometimes people nowadays… 2017, might be considered early. I don’t know. But that’s when I really fell down the crypto rabbit hole and probably a pretty traditional path as a lot of people in Silicon Valley at the time. I started reading all the white papers, going all the meetups at the time you could go to in-person meet ups, which was a lot of fun, and just got really excited about the long-term vision of crypto. In particular, I was very excited about crypto going beyond just financial technology. Most of the applications at that time were around capital formation in the form of ICO’s or financial products and exchanges. But, I was interested in sort of what was called I think at the time the tech thesis around crypto, which was how does this actually influence kind of the underpinnings of the internet in a much broader way than just transforming finance? So that was really what excited me about the technology.

Laura Shin:

And I’ve heard you say before that, so as far as I understand, you entered YC with a different crypto idea and then CryptoKitties came along and and was kind of how you came upon this path of founding OpenSea. And what was curious to me about that was that at the time of CryptoKitties most use cases for crypto were financial. So what was it about NFTs that made you think that they would eventually become mainstream and become a really popular use case?

Devin Finzer:

Yeah, I think at the time my co-founder Alex and I, we were really looking for just fun projects. We knew we wanted to do something in crypto, and we were just looking around to see what was the most exciting thing to work on. And part of it was a bit of naiveness on my part. I hadn’t been really that involved in the gaming ecosystem. I hadn’t realized how cool online games had gotten. Maybe if I already knew that I wouldn’t have thought that CryptoKitties was as cool as it was, but I just thought a digital cat breeding game was fun and interesting. The fact that these things were selling for hundreds of thousands of dollars certainly raised some eyebrows. And then the deeper you go down the rabbit hole, you realize that what’s magical about these NFTs is not just — it’s not just sort of them in isolation, right?

If you think about CryptoKitties, technically you could build the CryptoKitties application in isolation without a blockchain. There’s nothing that really relies on the blockchain, but the sort of effects of the ecosystem around CryptoKitties… So at the time, people were building applications on top of CryptoKitties. One of the folks who actually currently works at OpenSea built Kitty Hats, which is a way to accessorize your CryptoKitties with a hat. You really couldn’t build that type of application without some form of true digital ownership of the asset and the ability to kind of move it from just the CryptoKitties website onto an external marketplace or onto some other game. And that was a really fascinating concept to me. It was this idea that you could have this new type of digital ownership that would allow for a lot more creative use cases than what you see with a traditional digital assets.

Laura Shin:

And since NFTs are still something that people are wrapping their minds around, can you just answer the simple, basic question of what is an NFT?

Devin Finzer:

Sure. And as many probably know, NFT stands for non fungible token. The way I like to think about NFTs is they are a sort of digital item with some of the things that are really nice about physical items. So when you own a physical item, you can kind of do whatever you want with that thing. If I own a cup, I could give it to a friend of mine. I could throw it in the trash. I could go and put it for sale on eBay, or go and put it for sale on Craigslist, right? There are lots of different opportunities for things I could do because I really own that item. I have full property rights over it. Now contrast that to a traditional digital item, think about your Twitter handle, or if you play any online games, think about, you know, an item that you’ve earned inside of a game.

Well, if I told you, go and sell your Twitter handle on eBay, that’s pretty difficult to do. You don’t really have the same property rights over those digital items that you take for granted in the physical world. So NFTs kind of layer on those property rights to digital assets in a really interesting way that, in isolation, again, maybe they look just like regular digital items usable inside of a game. But, with an ecosystem around it, with lots of marketplaces, with virtual worlds, where you can go and take these items, then they start to look very different and much more interesting in our opinion than just a regular digital item.

Laura Shin:

So you’ve been interested in NFTs for years, and you’ve been working in this space for a few years. Why is it, do you think, that NFTs finally took off in the last few months?

Devin Finzer:

Yeah, I think it was a combination of things. The most important of which was really the buildup of a lot of hard work over the last roughly three or four years. It depends how far back you want to go back — I guess you could go back to the origins of Bitcoin if you really trace it that far back. But really the last three years, there’s just been a lot of activity and a lot of building in the NFT space. So it started with CryptoKitties. It started with projects like CryptoPunks as well. But from there, there was so much early developer interest, that all of the tooling around NFTs got a lot better. So wallets improved. MetaMask really improved their support for NFTs and also for fungible currencies. Marketplaces like our own emerged and allowed anyone to kind of create an NFT and immediately start trading it. Art platforms emerged that were specifically dedicated to bringing artists on board to create NFTs and building more of a curated experience. Fiat on-ramps onto crypto started getting a little bit better.

So you had that buildup of infrastructure such that, today, when you kind of dive headfirst into the NFT space, there’s just so much to explore. Actually, just to rattle off a few other things…. There’s NFT index funds, where you can take your NFTs and put them in and sort of turn them into an ERC 20 that can be traded. There’s collateralized loans on NFTs. There’s all this really cool stuff. And then I would say there were a few things that really poured fuel on the fire for the NFT space and kind of accelerated that inflection. And some of them were these really big sales.

I think you covered the $4 million Beeple sale. I think you had a large part in it and really bringing awareness to this space and a lot of artists I think really took note at this idea that you could have a real business as a digital artist. That was something that didn’t really exist as a career opportunity in a real way. So those types of events really led people to take note of this space. Another example is NBA Top Shot, which worked with the NBA to build an NFT trading card game. I think that really accelerated the space forward. So, in my opinion, it wasn’t one silver bullet. It was a lot of things kind of coming online and really the accumulation of a lot of hard work from a lot of different people.

Laura Shin:

Yeah. I know personally for me, that people I know in my personal life who definitely don’t have a crypto background were texting me about NBA Top Shot. So I thought, oh, this is something that’s catching the attention of non crypto people. And so who is creating NFTs? I know it’s a very diverse group of people? And who are the buyers?

Devin Finzer:

On the creator side, it’s very diverse. We have everyone from game companies that are building NFTs into games. So great examples of that include Decentraland. So Decentraland is a virtual world project where you can own land inside of the world as an NFT. And then if you own that land, you can build stuff on top of it. And what’s even more exciting is that after you built something on your land, you can bring in NFTs from the art world and people have created museums inside of Decentraland. So Cryptovoxels is another example of this. So there’s this whole gaming ecosystem that flies a little more under the radar relative to the stuff that’s happening in the like creator, influencer, musician side of things. But I think it’s actually really exciting and really important to push the space forward.

And then the other folks who are creating NFTs, really anyone can go and create an NFT. I was telling someone the other day that I created an NFT where, if you bought the NFT, you could get 45 minutes of advice from me on how to build a crypto startup and surprisingly people actually bought it. The sky’s the limit in terms of what you might want to sell as an NFT. We’ve really seen some pretty strange things. But you know, now there are more and more influential folks creating NFTs. Rob Gronkowski, a pretty famous football player, recently launched a set of trading cards on Open Sea. Kings of Leon — so we have musicians. Really everyone’s sort of tiptoeing into it and trying it out. So that’s on the creation side.

On the buyer side, I would say that traditionally it has been folks who are deeper into the crypto ecosystem already. So maybe they own a bit of ETH and are excited about the vision of web3 and therefore, checked out a web three-game and want to participate in it. So sort of at the intersection of crypto enthusiasts, gamers, technologists, those types of folks. What’s exciting, to your point, around a NBA Top Shot is that that’s really expanded dramatically in the last six months. So, as you said, now there are folks who haven’t even heard of crypto or aren’t familiar with it who are just fans of the NBA or fans of a particular creator and want to support them in some way. And those types of folks are starting to get involved as well.

Laura Shin:

Obviously there have been a number of sales that have had eye-popping sales tags attached to them. And I was wondering, do you think that we’re currently in a bubble with NFTs?

Devin Finzer:

That’s a good question. I think it’s hard to quantify the NFT bubble. With cryptocurrency bubbles, you can point to the price of ether and you can say like, ‘the price of ether is too high’ or something like that. With NFTs, it’s not just about like the price. There was a $69 million sale of the Beeple art. But it wasn’t because that the purchaser sort of thought of that as an investment necessarily, it was more sort of a cultural moment. And if you listen to interviews with him, it’s really interesting to hear him talk about why he made that purchase. He was really solidifying digital art as a category. So I do think that like all new technology, there’s sort of this wave of exuberance and excitement, and then the excitement kind of dies down.

That being said, I think if you look deep into the NFT space, you realize that there’s all of this excitement, there’s all of this volume, and all of these transactions happening on a very hard to use user experience — for the most part. Some applications have made this easier, but they do cut corners in terms of giving people sort of the full NFT experience. And so I think there’s so much that we can do to really make the experience better that I am optimistic that maybe even if the excitement sort of cools down a little bit, that we’re really just at day zero for NFTs. I am extremely confident that the design space for NFTs is just going to get wider and wider and more and more exciting. There’s always these sort of local maxima and then a little bit of a correction, and then things kind of progressed from there.

Laura Shin:

Yeah. I will have to agree with you on that. And I’m sure you know more about this than I do, but from what I’ve been hearing, there’s just a lot more coming from a lot of new players. On that note, how do you see the NFT ecosystem evolving? What do you think will end up being the biggest categories and which are some categories that are kind of quiet or small now, but that you expect to become much bigger?

Devin Finzer:

Well, I think the category that has really resonated with people for good reason is this idea, this really simple concept: that as a creator — and a lot of people are creative, everyone’s creative in some way in my opinion —  that as a creator, you can create content and have a direct relationship with the person who’s supporting you. Contrast that to Instagram where you’re uploading your photos to Instagram or your content to Instagram and Instagram’s business model is not going to reward you directly for the things that you upload. You’re going to you know, basically be kind of subject to their platform and their advertising-based business model. Typically you don’t earn much from that relationship with that company. So that’s a powerful idea. The idea that anyone who’s creative can create content and distribute it to people who want to support them.

And I think that’s going to get more and more powerful as we lower the barriers to entry for blockchain. So for example, today on Ethereum, in order to do a transaction, you’re typically paying $50 in gas. Imagine if it was only less than a cent in gas. Well, you could have people buy things for 50 cents. And at that point anyone who wants to contribute to their favorite artists can really easily do so in a way where you’re not necessarily expecting a ton from it, but you do kind of feel like you have a stake and you could resell the NFT later down the road. And so it’s a very interesting kind of hybrid model between you’re not exactly investing in that person, but you are contributing to them in a meaningful way and there’s some sort of upside as opposed to a pure Patreon type model where it’s pure donation-based.

So I think that use case is really powerful because it’s so simple. It doesn’t require going and creating a new game or creating a super sophisticated experience. It’s something that can resonate with a lot of people. That said, I do think that over time, what I’m excited about is more and more utility being added to the NFTs. So as opposed to just being a pure collectible, having some use case, whether that’s a ticket to an event, an item inside of a game, access to a a closed group. I think the sky’s the limit in terms… like with my use case where you get 45 minutes of my time. I think those types of things are super interesting as well. So I would say the general theme is greater and greater utility. And if I was gonna point to a couple of categories I would say gaming is extremely exciting and event ticketing is also extremely exciting. And I think we’ll definitely see continued innovation in the gaming space I think this year.

Laura Shin:

Yeah, I agree with that. I’ve been keeping an eye on the gaming thing, but I agree with you that because of the fees on Ethereum right now, it’s probably not going to take off quite yet, but you’re right. There are new solutions in the works it could be right on the cusp of major growth. So I don’t know if any of the examples that you just gave fall into the category of what I’m going to ask about, but you wrote this amazing NFT Bible. One of the topics that you covered was the programmability of NFTs. You even gave some examples, but I actually didn’t know what some of these terms meant. Like you talked about forging and crafting. So the two I could figure out what redeeming and random generation. Can you just talk a little bit more about what you think is possible with the programmability of NFTs and define some of those other examples?

Devin Finzer:

One of the interesting things to mention about NFTs is: what is the sort of most generic NFT possible? Well really all it is, is it’s who owns this unique serial code, right? So who owns CryptoKittie ID number one, two, three, four, five, and then the ability for the owner to transfer it to someone else. That’s really all that’s baked into an NFT: it’s who owns it and the permission to transfer it. On top of that, you can layer all sorts of other things. You could you can program into the smart contract that, you know, you take a CryptoKitties and a Gods Unchained card, and you like send them to the same address and then suddenly another NFT pops out. Something creative like that.

I think that’s what I was referring to when I was referring to forging. It’s a game mechanic where basically you take different sort of raw materials and create something new from them — very under-explored in the NFT space largely because of gas costs, I think. If we’re speaking primarily about gaming, it’s very interesting, because you can create games that involve assets from all sorts of different places: CryptoKitties, trading cards, Decentraland land, and create new assets from them. And the game developer doesn’t have to have a relationship with those companies because they’re just NFTs at the end of the day. They all look the same. So that’s one example of sort of a creative programmability use case.

Randomization: the idea there is can you create NFTs that are more randomly generated? So there has been a number of projects in this space, but there’s a lot of excitement and some controversy over loot boxes asking if you can create on chain transactions that randomly generate a set of NFTs? There’s some work in that area as well.

Laura Shin:

What did you mean by referencing loot boxes?

Devin Finzer:

Loot boxes are basically… in games you’ll have these boxes that you can open that randomly give you items inside of the game.

Laura Shin:

Just one last question I wanted to ask about NFTs. We’ve been talking about ownership, and I do know that there’s kind of some questions around what exactly it is that people own when they own an NFT. What would you say it is that they do own?

Devin Finzer:

Well, it differs. So in the base case, let’s take CryptoKitties for example. When you buy a CryptoKittie you own the CryptoKittie but that doesn’t give you the rights to go and sell shirts with the CryptoKittie on it. You don’t own the rights to the CryptoKitties, unless they change something about how they write the copyright. Yeah. That’s not what they’re selling now. Someone else could come along and make a contract, a legal contract that says when you buy this NFT, you do get the rights. That’s a totally legitimate thing to do. But the point here being that all the NFT is opinionated about is it says who owns a serial code and that serial code can represent anything. It could represent real rights or it could not.

It’s really up to whoever sort of issued the NFT to say what rights. And it’s also up to that to people respecting those rights. So you know, for example, here’s another interesting example. We’ve had folks tokenize physical assets where they took bottles of wine and they turn them into NFTs. And so they said, okay, this NFT represents this bottle of wine. You can kind of cash it in and get the physical asset if you want. And then these things can be traded around and used in the DeFi ecosystem. So there’s all these really exciting things that you can do once you’ve turned them into an NFT. You’re still relying on that party to respect that you can go and get the physical bottle of wine. Like if they go out of business or run away, then that’s not going to work.

And similarly in games. You’re sort of respecting that the CryptoKitties game is going to stick around. Now where it gets interesting is you can create NFTs that sort of don’t have reliance on any single party. So this is what a lot of folks are starting to do in the art space. They’re creating an NFT and then they’re representing the metadata for that NFT. So the metadata is the image, the name, description, and all of the like attributes of that NFT, they’re putting that on a decentralized file storage system. And so there, it’s sort of just as unstoppable as the NFT ownership itself. It’s basically there, permanently, on this decentralized system. And so it doesn’t really rely on a game website to be available, or, in the case of the wine for the company selling the wine to exist, it’s just out there. And that’s pretty interesting because those types of NFTs you can imagine them like persisting for centuries or decades. And so that’s kind of an interesting thing that’s happening as well.

Laura Shin:

Yeah. One thing that I found interesting was Bloomberg columnist, Matt Levine, called NFTs tradable ostentation. And I’ve heard other people talk about it as bragging rights. What do you think of those characterizations?

Devin Finzer:

I think that is certainly applicable to some types of NFTs. I think the best example is CryptoPunks. So CryptoPunks was started actually before CryptoKitties. It was really the most, well, I guess people would debate me. There was also rare Pepes and things like that, but one of the most OG crypto projects. For those of you who aren’t familiar with it, there are basically these 10,000 CryptoPunks. They’re pretty simple kind of art pieces. They each have different characteristics as sort of alien punks and zombie punks and different hats and things like that. And back in 2017, they were given away for free. So you could just go… you could go on the CryptoPunks website and you could submit a blockchain transaction and claim one.

For a long time there was a very small group of people who were enthusiastic about CryptoPunks. And every now and again, you know, one would trade for a hundred, maybe, maybe a thousand dollars. It was not a lot of activity outside of sort of the core NFT enthusiast. But what’s happened is that owning a CryptoPunk has really become symbolic in some ways of either. Either you spend a lot of money on that to find or you were very early in the space, right? So a lot of people have them as their Twitter handles. There’s sort of this crypto cultural significance to owning your CryptoPunk to the point where now, if you look at CryptoPunks, one was sold not too long ago for $8 million.

So they’ve sort of become an, you know, frequently they’re valued at the million-dollar range. I think the cheapest one is, you know, 10 or 20 grand. And so they’ve sort of become this candidate for a real digital antique that has gone far beyond sort of the original. I think if you ask the folks who created CrptoPunks, they had no idea that this would be happening three years later. And they’ve sort of taken on a life of their own in the culture of crypto and even more broadly than crypto in the general tech scene. So it’s been really interesting to see that project evolve. And so I think to your original question, I do think in these certain circumstances I don’t think that that sort of dynamic is going to apply to all NFTs. Some NFT are just useful. In some circumstances they really have taken on this very cultural significance. That’s similar to owning a physical piece of art.

Laura Shin:

All right, this is so much great information about NFTs, and yet we have not discussed OpenSea. So in a moment, we will do that, but first, a quick word from the sponsors who make this show possible.

EY:

Today’s episode is sponsored by EY Blockchain. Ernst and Young is committed to supporting integration of  the world’s business ecosystems on the public Ethereum blockchain. Join our fifth annual blockchain summit and education series on May 18–21 for a deep dive into zero-knowledge privacy technologies, accounting and tax rules, as well as the future of finance.  Sign up and learn more at ey.com/globalblockchainsummit or blockchain.ey.com.

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Laura Shin:

Back to my conversation with Devin. All right. So, what is OpenSea?

Devin Finzer:

So OpenSea is a marketplace for NFTs. One way to think about it is an E-bay for NFTs where you can go and you can buy and sell pretty much any NFT that’s on Ethereum. We’re actually expanding to other blockchains as well. And so we allow for a variety of sale mechanisms. So you can go and you can auction your NFT off to the highest bidder. You can do what’s called a Dutch Auction where you start at a specific price and it declines, or you can just do a fixed price listing. We have bidding — we have all of these different sale mechanisms for NFTs. And then the last thing I would say is that OpenSea has become sort of a source of truth for NFTs. We’ve been around for quite a long time. We index all of the NFTs that are out there on the blockchain, meaning that we allow you to explore and search and discover all of them. And so that’s sort of another role that OpenSea has been playing in the ecosystem.

Laura Shin:

Since NFTs can be bought and sold on multiple platforms, how do you expect to maintain OpenSea’s position as the biggest marketplace? What would you say is its moat?

Devin Finzer:

Yeah, I would say we’re very focused on improving the customer experience. We’re not as opinionated about having a lot of lockdown onto our platform. We’re super happy if people go and experience other NFT websites. We think that at the moment, it’s really a rising tide lifting all boats. But I will say that we are laser-focused on making our customers happy and we do have a long way to go there. I think there’s a lot of UX that needs to be improved about blockchain experiences in general and OpenSea in particular. But we do see ourselves establishing a real brand and trust with our customers such that they can really reliably come onto OpenSea, get the best prices, discover the things that they might want to purchase, and have a really great experience around NFTs. And, you know, frankly, I think users don’t necessarily want to constantly be moving around between tons of different confusing user experiences. They want something that they can rely on. So we really aim to have OpenSea be that reliable source of both NFT data and the ability to trade NFTs as well.

Laura Shin:

And in terms of appealing to creators, how do you compete against the market places that are focused on specific verticals? For instance, if I’m a visual artist, why would I use OpenSea over something like SuperRare?

Devin Finzer:

Great question. I think the way we see it is there’s certainly an exciting role for more curated marketplaces, like SuperRare. But also it’s important for people to have the ability to just create an NFT and sell it to people regardless of whether they’ve been accepted into a specific platform or a specific, more curated, set of artists. We’re not trying to be… We don’t think of ourselves as competitors to something like SuperRare. We think we’re quite symbiotic with SuperRare. Folks can buy NFTs on SuperRare and sell them on OpenSea if they so desire. We do have an open minting platform that allows anyone to come and create an NFT and sell it. I think the benefits of ours is that we have a nice set of features there. So we recently made some optimizations where you can mint without having to pay the gas upfront and sort of offloading it to the first purchase. And then we’ve added a bunch of really interesting additions to that: the ability to add unlockable content to an NFT, adding different properties and traits. So we find that a lot of people find that feature set is really great for getting something off the ground.

Laura Shin:

And the unlockable content is just specific content that only the buyer will know or have access to, did I get that right?

Devin Finzer:

Yeah.

Laura Shin:

And so how does OpenSea make its money?

Devin Finzer:

Yeah, we currently take a transaction fee. So on successful sales take 2.5%.

Laura Shin:

And for the minting where the cost of minting is offloaded to the first transaction, is it the buyer paying that or the creator?

Devin Finzer:

In that scenario the buyer pays the gas cost. That’s separate from the fee that OpenSea takes. But, yeah, the buyer pays the gas cost in that circumstance. I will note that even if you minted it with a regular system where you actually did pay the gas cost, the buyer would also pay the gas costs to transfer it. So the buyer is kind of paying the gas costs in either circumstance.

Laura Shin:

So over time, what do you expect to be OpenSea’s largest source of growth? Or which of the categories do you expect will be one of the biggest ones for you?

Devin Finzer:

Well, I think we’ve always seen OpenSea as a very general platform. So my hope is that we don’t just become a marketplace specifically for art or a marketplace specifically just for gaming. I really hope that the use cases and diversity of NFTs continues to expand and that we sort of become this really horizontal marketplace that can support all sorts of different use cases. But I do think that there are certainly some of those use cases that I think will take off earlier rather than others. And the ones that I would definitely point to are number one, gaming. We’re seeing a ton of activity there, especially given the we’re expanding across multiple blockchains now. And then art I think, is going to be… Art and sort of creator/collectibles is going to continue to be a really exciting use case as well.

Laura Shin:

And is that because those change hands a little bit more often than some of the other categories? I would have thought that maybe a bigger category for you it’d be one where the items do change hands more frequently, cause then you would get a cut of each of those sales.

Devin Finzer:

I think in gaming, what we witnessed is that, depending on the game, the lower value assets do change hands relatively frequently. The higher value assets, not as much obviously. And that’s a good point about art is that like if you look at SuperRare, for example, most of their sales are primary sales, not secondary sale. But there are these  occasionally very large secondary sales. So it’s a little bit of a different dynamic. But in the gaming space our sense is that once you have lower transaction costs, you can really create a robust economy where you can have millions of people participating at 50 cents to buy their first item from the secondary market. But then you can also have the sort of prosumer cohort that’s more interested in purchasing things at a higher value. And maybe the velocity and the frequency with which those things change hands is a little bit lower.

Laura Shin:

I guess I just realized that either way, even if something doesn’t change hands frequently, if it’s higher value than if your fee is based on a percentage, you’ll still get a hefty fee for those. So then it’s like less about the frequency. Do you have stats on how much money people tend to be making with OpenSea? And I’m sure it probably differs across category, but I’m interested to know those numbers.

Devin Finzer:

It’s hard to say exactly how much money people are… I don’t have aggregate statistics that I’d be able to rely on. That being said, in terms of just general stats: last month we did around $148 million in gross merchandise volume that was up from about $98 million in February and then just $8 million in January. So, as you can see, there has been really crazy growth of this space in the last little while. If you take sort of an example set of digital artists, I was actually just talking to a class from the Fashion Institute of Technology here in New York over Zoom. Someone apparently had gone and just gotten really, really deep in the NFT space last year and made $25k from just selling their digital art and used that to pay student loans, which is really awesome to see.

So there stories like that. There are now these sort of up and coming digital artists who occasionally are leaving their day jobs and deciding to devote their full time to this, which I wouldn’t necessarily advise to do unless you know that you’re gonna be successful at it. But it is becoming this really interesting opportunity where artists can directly monetize their work and people who want to support those artists can contribute really easily. So whether that’s sort of viewed from an investment angle or more of just a support angle, I think it’s just a completely different dynamic than, again, what you would see on existing digital platforms,

Laura Shin:

I heard you say on a different podcast that you’ve been getting a lot of inbound, but that conversation with the FIT class makes it sound like you are also trying to do things to draw in non-crypto creators to this space…

Devin Finzer:

Most of our recent launches with, with bigger creators, influencers, athletes, musicians have been from people reaching out to us being interested. I think all of that NFT platforms are just seeing this really giant wave of excitement and curiosity, and, in some cases, confusion around what NFTs are. So we’re certainly seeing that. Frankly, we’ve probably done a lot less outbound outreach than some of the more art targeted platforms. We’re more focused on building our sort of horizontal platform than going specifically and trying to target artists, but it is certainly a lot of fun to have those sorts of conversations with the younger people who are who are like learning about it. And it’s always great to get kind of feedback on what are the questions that people have and what are the like sources of confusion.

Laura Shin:

You recently launched OpenSea Drops, which are these collaborations with some bigger name creators? Do you have any numbers that you can share in how successful those have been?

Devin Finzer:

Yeah, so we launched a few pretty exciting drops recently. So one was with Rob Gronkowski. I believe he did $1.5 million in trading card sales, and I think a total of $3 or $4 million secondary sales as well. We did a launch with an artist named Kevin Abosch who I believe sold $5 million recently. And then we’ve done a whole set of folks from Sean Mendes on the music side to athletes. So lots of early experiments and a lot of excitement around it. Recently we also did the SNL auction. The SNL team actually auctioned off their videos of NFTs as an NFT. So that was a lot of fun. So yeah, we’ve been doing all sorts of stuff.

Laura Shin:

Yeah. That was a great video. I did mention it on the podcast. Hopefully people watch that. So as you mentioned, OpenSea plans on integrating some layer 2 solutions plus other blockchains. The two layer 2 solutions I know about are Polygon and Immutable X and then some of the blockchains are Flow and Tezos. How do you decide which other blockchains or which layer 2s to support?

Devin Finzer:

In general, for any application developer, there are these pretty interesting trade-offs right. So if you look at, and again, I’m not saying that one solution is better than the other, it’s just that they come with different pros and cons. On one side, you have layer 2 blockchains or EVM compatible blockchains that look a lot like Ethereum. And the nice thing about those is that you can use all of the existing Ethereum infrastructure, right? So it’s a lot easier for application developers to support, which means that there could be more assets deployed on them. And then for users, they don’t necessarily have to learn a new wallet. They can use MetaMask, which in my opinion, has some really great tooling, and pretty easily connect to one of these other blockchains. So on one side, those are kind of the benefits of being more compatible.

Laura Shin:

So are you saying that that would apply to Tezos and Flow?

Devin Finzer:

So that’s one side. Then Tezos and Flow are sort of on the other side where you know, Flow is not EVM compatible. They have their own wallet. They’ve done an amazing job of sort of abstracting away some of the blockchain components of the application to make it really easy for someone who’s not familiar with crypto to buy their first item. And then Tezos similarly, right? You have their own wallet ecosystem around it as well. So there’s pros and cons, right? With this approach, they can fix a lot of the broken things about Ethereum. There’s a lot of things I think that Ethereum probably would have done differently if they could start over — some highly technical things that just make the Ethereum blockchain kind of interesting to work with particularly around programming languages, how the accounts work, those types of things.

So that’s a nice thing about starting fresh. But of course, the con is that you’re you’re not sort of immediately interoperable with the existing infrastructure. So we sort of balance those two approaches. We’ve built our systems in such a way that we can support everything eventually, but, of course, there’s going to be more of a heavier lift around the things that are less compatible with Ethereum. We sort of evaluate things based on how much activity and how much demand is there from users at the end of the day.

Laura Shin:

Oh, okay. So for Flow and Tezos what tipped it over to you guys adopting that? Was it demand? There are so many blockchains that are competing with Ethereum. I guess Flow makes sense simply because of NBA Top Shot, because it’s pretty focused on the NFT space. Tezos, you know, has a number of other competitors. I should mention Tezos is definitely a previous sponsor of my show and may even be a current sponsor. How did you pick amongst the constellation of blockchains that are vying for that space?

Devin Finzer:

Well to be clear, we haven’t launched either of those yet. So we’re still in the development phases. We’re not at all opposed to integrating other blockchains as well. We take a very blockchain agnostic approach. What we liked about Flow is obviously they’ve been great partners with us from the beginning. They launched Cheese Wizards and they relied heavily on OpenSea as a secondary marketplace for that game. That was sort of their second game. We just have a very good relationship with them where I’m frankly really excited about some of the decisions that they made on the technical side around how they architected Flow. I think they really put a lot of thought into security, a lot of thought into how applications are developed on Flow, those types of things.

Tezos, similarly, we’ve had a great relationship with them for a long time. And we’re excited about some of the early art projects that are coming to fruition on Tezos. Our belief is that we’re going to live in a very multi-chain world over the next coming years. It’s not just going to be a single chain that dominates everything. It’ll be a bit messy I think for awhile with a lot of competition on kind of the layer 1 and layer 2 space. Probably some consolidation eventually, but I think application developers, in my opinion, need to be prepared for a world where there are a lot of different blockchains. There’s some probably going to be some user confusion about that as well.

Laura Shin:

And for the layer 2’s…  does using layer 2s fragment NFT liquidity?

Devin Finzer:

That’s a good question. I would say it depends. What we’re seeing mostly with layer 2s today is that NFTs will launch on layer 2s and then be tradable in the layer 2 environment. And then if folks want to bring them to layer 1, they can, but they don’t necessarily have to. So actually I think layer 2s because they have lower gas costs and higher throughput actually improve liquidity particularly for decentralized marketplaces while maintaining interoperability with the main chain. So I actually think they’re gonna really help marketplaces get to the next level.

Laura Shin:

I think that’s a really interesting point and you’re right, that, especially for gaming, as we discussed, because, as you mentioned, you’re going to be launching with immutable X, and so we would probably see gaming takeoff more with a chain that can handle high throughput for NFTs. For OpenSea, a lot of creators are excited about being able to create an NFT where the secondary sales will give royalties back. And so when artists collaborate, how easy is it for them to have the revenue split directly in the smart contract for all future sales?

Devin Finzer:

Yeah, great question. So it is something that’s evolving over time. There are a variety of approaches. So there’s sort of one approach, which is try to be very heavy-handed and bake the royalty into the NFT itself and say you can’t transfer this NFT unless you pay this sales fee. That approach, for the most part, I think people have moved away from. The new approaches is to say, okay, the NFT can kind of broadcast what should be the secondary sale fee and marketplaces can respect that. And if the marketplace doesn’t respect that, well, then maybe you don’t really want to use a marketplace that doesn’t respect the secondary sale fees. So there’s a new standard sort of revolving around that idea. Because one thing to keep in mind is unless you’re extremely heavy handed, it is difficult to enforce secondary sale fees at an extreme level.

So for example, let’s say that I wanted to sell you my piece of crypto art, and I didn’t want to give the artist their cut. Well, I could just sell you it for a dollar or a very low amount, give that very small cut, and then you could send me money on Venmo or something. There’s always sort of workarounds for getting around those types of fees. In my opinion, it’ll sort of be a collaboration where marketplaces decide we’re gonna respect these fees in our marketplace. If you use our marketplace, we’ll respect them. But you know, it’s not so heavy handed that year that you can’t transfer it freely as well. Cause I do think that it’s important that people can transfer NFTs to whoever they want without some sort of weird restrictions on having to pay a certain amount just for a transfer. So I think it’s an evolving thing that will require some sort of coordination between the different parties as all.

Laura Shin:

That’s interesting. I think the reason that creators are excited about this space is because of the royalty aspect. So kind of speaking of ways in which this space can be maybe not so positive for creators, there are a number of NFTs obviously that are being minted by the people who don’t have the right to mint those NFTs. And I was curious on the OpenSea platform, what percentage of the NFTs minted there fall in that category?

Devin Finzer:

Unfortunately, I’m not sure what percentage it is. But I can tell you how we and other folks deal with those sorts of circumstances. It is an increasing percentage I would say, or not an increasing percentage, but an increasing number, right? So as the number of NFTs grows and more and more people start minting, there’s of course a number of things that happen. One: there’s more opportunity for fraud. So, for example, someone could, since you can create an NFT, they can create an NFT that looks identical to CryptoKitties and try to sell it to someone. So that’s something that happens every now and then on our platform. And then, of course, there’s this issue of taking content from existing sources that they don’t own and uploading those as NFTs.

In both of those scenarios the way that we think about it is yes, you have created an NFT and in some ways, it is a legitimate NFT. But OpenSea does not care to display that on our site. So we’re not going to display a fraudulent CryptoKitties because it would confuse our buyers.  And similarly, we’re not going to display copyrighted content because that’s against the law. So what’s very interesting is that you could in theory create sort of a Silk Road type experience around NFTs where you can sell these like knockoff NFTs. And I don’t know how much demand there would be for something like that. But the interesting thing about it is that OpenSea is not the only platform out there, so we’re not the gatekeepers. We’re not like Twitter where we can kind of completely shut down people’s accounts. But we do have policies in place around what types of things we allow people to publish on our platform.

Laura Shin:

And so how is it typically that creators usually figure out that their work has been minted into an NFT without their consent?

Devin Finzer:

So we have a flagging system on OpenSea where if you notice something that is suspect, or if you’re the artist who created it, you can flag it. And then we have folks who look through those reports and the de-list that content.

Laura Shin:

And then, if there has been somebody who already purchased that, then what happens at that point?

Devin Finzer:

In those sorts of circumstances… we have a relatively sophisticated system around this. Anything that has been created on OpenSea that has not been explicitly verified by OpenSea has a warning attached to it. So if, for example, CryptoKitties, we know the CryptoKitties contract. We know if something is a CryptoKittie, we even have a little blue checkmark next to it that says, this is indeed a CryptoKitties. And so we don’t show that warning. But for anything that is just uploaded by someone and linked to, then we do show that warning and the onus is on the buyer, in that circumstance. So it’s sort of do your own research when it comes to unverified items, frankly, because we don’t have the bandwidth to look through all of the content that comes to OpenSea. But we also ensure that unverified content is not going to show up in places where users might make the mistake and think it’s something that has been verified. So our feed is a lot more tailored to the top content on OpenSea, as opposed to just anything that has been listed.

Laura Shin:

So if I buy an NFT and then later on it’s flagged as something that was a copyrighted material that the creator did not have the right to mint, then I don’t get refunded my money or anything like that? It’s just, you know, I didn’t do my research?

Devin Finzer:

Unless the creator decides to refund you your money. Then that’s correct.

Laura Shin:

And then what happens to that token? It’s just that it cannot be listed on OpenSea?

Devin Finzer:

That’s, right. So if it’s copyrighted content, the token will sort of appear as a black square on your profile that says unfortunately this item was delisted. But if there is another marketplace out there that doesn’t have any objection to that content or does want to support that NFT, it’s still in your wallet technically.

Laura Shin:

And is there any kind of Goldilocks version of OpenSea doing some vetting in a form that’s decentralized? Because I feel like the current system, it’s probably more negative for creators the way it’s currently done. Because it means that whoever wants to steal their work and mint it can basically just do that. They don’t really suffer major consequences. So is there any kind of decentralized version of this where OpenSea has some kind of token, and then there’s a decentralized network of people who do some vetting about what gets minted on the platform rather than catching people after the fact?

Devin Finzer:

Yeah. Well, I’m not aware of any decentralized version. I guess there’s two angles. One is sort of the token curated registry idea, which has been around for a long time. It’s just basically like a group of people that would vet content before it gets minted. So that’s certainly an interesting idea. I don’t know… it’s possible that something like that could scale. Maybe it’s an interesting startup idea. Now, what I will say, is that doesn’t prevent people from just, you know, deploying a smart contract and minting to that smart contract and having it show up on OpenSea in some capacity. I’ll also say that it’s not just after it’s been bought that we have this flagging system. If you identify something before it’s even on sale we can take it down, and then, additionally, we’ll be putting better measures in place to auto-detect this stuff through basic machine learning and sort of image comparison, those types of things. So I think there’s a lot of sort of low-hanging fruit improvements we can make before necessitating sort of something more extreme but I’m in full support of a more creative solution where it’s like incentivization and stuff. I think sometimes those types of things are compelling. Other times they’re hard to actually pull off in practice.

Laura Shin:

Recently, there was a story that Matthew Hickey of Hacker House introduced what he called the Zero Day collection, which included an asset that he described as quote, “highly collectible hacker artwork.” And it was basically a cybersecurity exploit that he minted as an NFT.  The day after, OpenSea took it down. What factors went into making that decision?

Devin Finzer:

Yeah. so I don’t know the exact… I wasn’t as involved in the exact decision around that one. Our sense was that it was in violation of kind of our terms of service in the sense that it was sort of selling something that we didn’t feel comfortable with. I don’t know the exact reasons. It was a little outside of the territory of things that we felt comfortable with.

Laura Shin:

And earlier we were talking about fractionalized NFTs, and there has been some suggestion that those could be considered securities. Do you have an opinion on that or any insight?

Devin Finzer:

We don’t trade fractionalized NFTs on our platform. I am not an expert on that. I’m not convinced that in circumstances where it’s a fractional version of a pure collectible, that it would necessarily be a security, but you know, we tend to stay out of the currency, fungible world and more oriented towards the sort of unique, one of the kinds of assets.

Laura Shin:

So let’s now talk again, kind of about where NFTs are going. As we’ve discussed, it’s a space where creators really can play. And yet in order to kind of build this world where NFTs are a huge thing, there are a lot of standards that still need to be set. So what do you see as some of the issues that need to still be decided upon when it comes to NFTs?

Devin Finzer:

Yeah, I think one area of opportunity, in my opinion, is around the metadata for NFTs. So today, it’s pretty basic, right? You can have an image, name, a description of your NFT, but you can’t necessarily broadcast to the world that this NFT is, for example, an event ticket. If you could broadcast that to the world, wouldn’t be that hard to do. It’s just creating some sort of standard around it. Then OpenSea could can kind of pick it up in a different way and support it more natively on our platform, such that, you know, maybe the sorting and the filtering and searching is different. Or if you broadcast it to the world that this is a game item, you know, maybe games could sort of pick that up and incorporate them in their game more interestingly.

So there’s sort of this open question around, you know, you have a CryptoKittie, and let’s say you wanted to create a game where you’re like battling those CryptoKitties inside of Decentraland. How can you broadcast what that CryptoKittie should look like in a different context?. Is it through like more advanced sort of set of 3D models? I think there’s just a lot of opportunity for richer metadata to have that kind of metaverse type ecosystem where things can really move between different types of experiences. So I think that’s an opportunity. And yeah, the other one we touched on was the royalty standard. I think we talked a little bit about that.

Laura Shin:

But for the royalty one, it didn’t seem like you thought there should be a standard way to handle that. Or do you? What’s your opinion on that?

Devin Finzer:

Oh, I think there should be a standard. I just think that it should be more of a standard that broadcasts what the royalty should be, and then marketplaces can opt in to the fee, as opposed to trying to bake it into the NFT smart contract itself — if that makes sense. Primarily for technical reasons because if you bake it into the NFT themselves, then you restrict the transferability of the NFT.

Laura Shin:

Wait, why is that?

Devin Finzer:

Well, let’s say that you said that whenever this NFT is transferred, let’s say that you somehow sort of enforced there’s a 5% fee every time it gets sold. Well, what happens if I just want to gift you an NFT? There’s not going to be a fee on that, and I could give you an NFT and you could pay me $500 through Venmo. It’s hard to get around those sorts of scenarios.

Laura Shin:

Hmm. Okay. It’s so funny because in other conversations that I’ve had, I think the creators, but even someone like Mark Cuban, is very excited about that. And then it just seems like you’re just saying people aren’t going to pay it. They’re just going to figure out other ways to get around it.

Devin Finzer:

I think I’m giving off the wrong impression. I think that it is really a technical issue. I actually, at a high level, I think there should be a standard for royalties. And I think in the majority of scenarios, marketplaces will respect those standards and pay royalties to the creators. So I think I was diving a little bit too much into the weeds on the technical side. That’s sort of my high level view. I just think that the one thing I would say is that there are a few devil in the details around how you actually enforce that. But I think that for the most part, it will be enforced through social consensus of marketplaces. And I think it’s a great opportunity for creators. I think creators will be able to sell their work and monetize the secondary sales. I think that is one of the big unlocks and it’s all it’s happening today on OpenSea, for example, and it’s happening on other platforms, and it’ll continue to happen. There are some coordination challenges around having every marketplace sort of use the same fee system. But I think it’s solvable.

Laura Shin:

Now that NFTs are more in the public eye, there’s been pushback on environmental issues. Does OpenSea plan to address that in any way to appeal to the mainstream world?

Devin Finzer:

Well, the biggest thing we’re doing today is we’re moving over from proof of work blockchains to proof of stake blockchains. And we’re actually first movers in this category. I think we’ll be one of the first applications to really have a significant multi-chain push away from Ethereum — not entirely away from Ethereum, but onto these more scalable versions of Ethereum that aren’t proof of work-based. I would say that it’s interesting. Number one: it’s a challenge for the whole blockchain space. It’s not just NFTs. Number two: it’s already happening, not just for environmental reasons, but for pure scalability reasons. So I think it’s this inevitable shift that is already starting to happen and going to kind of increase in velocity over the coming years.

Laura Shin:

I think it’s just more noticeable with the NFTs because it’s drawn in this non crypto crowd. It’s an issue across the space, but the NFTs for whatever reason have been the catalyst for a lot of criticism in that regard. So I recognize you may not be able to reveal who is working on creating NFTs with OpenSea, but what would you say is next for OpenSea? And maybe you can give some hints about what’s coming down the pike.

Devin Finzer:

Sure. One thing we’re really excited about is launching our first foray into multi-chain ecosystem, as I mentioned. So we have some alpha experiences there and are going to be launching things relatively soon as a full experience on the core platform. So we’re super excited about that. We do have a few launches in the pipeline of different content, but we do like to keep that a surprise for our users. We’re working with more and more athletes, musicians these types of folks on launching exciting NFTs. And you know, I think we’ll always just be focused on really improving the core platform. So trying to listen to what our users are saying and make it a much more friendly experience for people who are new to this space. I think OpenSea is a little bit intimidating for the casual user at the moment. So we’re making a lot of steps into better onboarding and making NFTs friendlier to people who don’t understand the technology yet. So, you know, those are some of the things that we have in the pipeline.

Laura Shin:

Great. And where can people learn more about you and OpenSea?

Devin Finzer:

Sure. So you can follow OpenSea on Twitter, the handle is @opensea, and then my Twitter is @dfinzer.

Laura Shin:

Great. Well, thank you so much for coming on Unchained.

Laura Shin:

Thanks so much for joining us today to learn more about Devin and OpenSea check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Nuss and Mark Murdock. Thanks for listening.