Paradigm founder Fred Ehrsam discusses again how cryptocurrency empowers creators and communities

This article is sourced from Chain News, authored by Fred Ehrsam, co-founder of the crypto asset investment fund Paradigm and co-founder of Coinbase, and compiled by Perry Wang.

Almost exactly a year ago, Jesse Walden (founder of the venture capital fund Variant Fund, previously a partner at a16z responsible for cryptocurrency investments), Blake Robbins (partner at Ludlow Ventures), and I speculated about the future of creators, communities, and crypto (Note: Chain News Chinese version link).

At that time, we had little idea of what last year would bring, especially not expecting NFTs to go mainstream. We recently gathered again for a conversation to reflect on what happened last year and speculate on upcoming trends. Below are excerpts from the conversation.

Fred: It's great to see you both again. Almost a year ago, we discussed how crypto could activate creators and communities. A lot has happened since then. What do you think has been the biggest progress made?

Fred Ehrsam, co-founder of the crypto asset investment fund Paradigm, co-founder of Coinbase

Blake: Last time we were here, we were thinking about what kind of status symbols early creators or supporters of creators would achieve. What would digital goods look like? It turns out, it’s actually just digital art. You could take a cynical view and say, "This is all just hype, you're buying random NFTs that have no utility," but as we continue to dig deeper, some really cool elements around this idea can create economic alignment.

Jesse: Think about the three major turning points that happened last year, some unique to crypto and others more universal. First, 2021 was the year that investing became mainstream culture. This wasn't unique to crypto: events like WallStreetBets and GameStop are prime examples. I think it taught people a lot about investing, internet communities, and making money together.

This paved the way for the second major turning point: culture then became investment. With NFTs, you can now invest in culture through digital art.

The next step is to fully integrate the two, where investment is culture and culture is investment. Investing becomes a team sport where you can fight alongside your friends on the internet. What's exciting is that people now understand: crypto is the right stack to achieve this. Crypto is inherently social. The traditional financial system is not.

Fred: Blake, how do traditional creators view this whole phenomenon? What do you think their reactions are?

Blake: If there's one thing we've learned in the past year or two, it's that these creators are gaining more and more empowerment. Take OnlyFans as an example. We've seen it explode in growth because it opened up a new way to monetize. I think NFTs will experience something similar.

We haven't yet seen a great creator really do this, and I'm curious if anyone will, and how they will do it. Because if they get it right, the future will be off the charts.

Jesse: One really cool thing that's starting to emerge is that we're seeing collector DAOs forming around NFTs. Edward Snowden sold an NFT for $5 million. The buyer wasn't an individual but a group of people pooling funds using a smart contract on Ethereum.

Further reading: 《Three Minutes to Understand PleasrDAO: What Value Does This Collecting Organization That Acquired Snowden's NFT Hold?》

We're going to start seeing groups begin to tokenize themselves. So if a creator's work has this group of fans, creating a token for that work could be like a social token for the creator or a community very interested in their work.

One possibility that truly engages content creators is that they might not be the issuers selling tokens and cashing out. Perhaps it's the fans who hold it in their hands, and that's how social tokens are born.

Jesse Walden, founder of the venture capital fund Variant Fund, former partner at a16z responsible for cryptocurrency investments

Blake: I haven't really thought about it in this context, but I can imagine how "fan culture" might play a role. For example, Beliebers (fans of pop star Justin Bieber) might come together to form a DAO and purchase NFTs of Justin Bieber's latest songs.

Fred: Jesse, do you have any intuitive thoughts on other potential developments for group investing or "investment as a team sport"?

Jesse: If you take this idea to its logical extreme, it means you and I (these professional investors) would be out of a job. I think investment clubs ultimately decide what people pay attention to on the internet, because it’s no longer determined by who gets shared or followed the most. The new influencers are those who own the most skins in the game. Who invested in what? This trend is already reflected in NFTs and will expand to internet products and services in the future.

Fred: We've actually seen some examples of this today. The modern art market operates this way. Economic support for artists often means climbing to the peak of cultural awareness. Crypto could create a truly powerful economic value feedback loop for cultural value.

Blake: When I was younger, I remember on those websites, you basically had to earn your reputation—either by uploading a certain amount of content or proving your worth in some way—to access those exclusive seed sites. I think we'll see similar dynamics on DAOs in the future.

Jesse: Membership in these DAOs will become more sophisticated and complex. In most cases now, it's just determined by capital. But to maintain high-quality standards for DAOs and the fun of these communities, we need to move away from relying solely on capital as a barrier to entry. Many startups are trying to help the crypto community raise its membership thresholds, creating treasure hunts or Easter eggs that people need to engage with.

Fred: We've already seen this in today's venture capital. It just hasn't been tokenized. In other words, if you invested early in one or two startups successfully, others might want you to invest in their startups early on.

Blake: You can imagine an artist deciding who they want to sell their work to. For example, wanting to sell it to PleasrDAO, even if they aren't the highest bidder, because the artist knows that collaborating with them will bring a lot of added value.

Blake Robbins, partner at Ludlow Ventures

Fred: Entertainment and investment are becoming part of the same mix. Sneakers were initially primarily a status symbol, and now they are moving towards financialization. Kanye West's Yeezys worn at the Grammy Awards were bought and are now being divided into shares, allowing many people to invest. I think politics is similar. When you watch an election debate, it feels like watching a boxing match with sports commentary rather than a substantive discussion about the future of a nation-state and its policies.

Jesse: What you're saying is a particularly effective combination in the market because whether making money or losing money—the distribution of economic benefits being directly related to oneself—will trigger very strong emotions.

Fred: We've discussed before that linking economic benefits to communities around different creators or projects can effectively stimulate them to convert into a highly motivated network of distributors. Bitcoin has proven this over the past decade, and I think we're just beginning to see this trend in the NFT space.

Blake: You both have deep insights into crypto, but I'm considering it from the perspective of YouTube video creators, as I envision that at some point, they should mint NFTs for all the content they are creating. But do you think they will still use centralized platforms for distribution?

Fred: We all know that the long-term trend is that cryptocurrencies will allow creators to operate independently of any platform, directly connecting with fans and truly owning that popularity. The development of NFTs is still in its infancy. It will be interesting to see how people build platforms based on NFTs as the fundamental media module. People are building completely crypto-native platforms with NFTs as the main module, and this process may take over 10 years; we are currently in year 0.5.

Jesse: In the short term, successful Web 2 creators may also do better in creating NFTs that are not original works published elsewhere, but rather conceived from the NFT perspective from the start, perhaps as a new digital native commodity, distinct from videos from YouTube.

I do agree with Fred that in the long run, every piece of media on the internet will be converted into NFTs. And there will be markets for trading these NFTs. I don't think it will happen by adding NFT widgets to existing platforms on YouTube. I think it will be more inclined to rise from the bottom up.

Fred: Furthermore, one embedded concept is that the blockchain will become the only source of truth in the digital world. Therefore, almost every piece of digital media could be minted as an NFT at some point, whether it's because you want to know when it was originally created, who owns it, and how it has evolved over time.

The second factor embedded in this is that the form factor of NFTs is still in a very immature stage and requires a lot of work. Most of the time today, we are just starting to scratch the surface, just like the beginning of any new technology. We are just beginning to explore some interesting ways NFTs can create new media, art, or other forms.

You could say that the breeding of CryptoKitties is one of the earliest versions of this new mechanism, where you can acquire two digital assets and then create a new unique digital asset. I believe other forms will emerge as well. Games and in-game economies seem to have high potential.

Jesse: Tim Sweeney from Epic Games has publicly stated that the metaverse can only exist with a true digital native ownership system. That's exactly what the blockchain is. We're starting to see the clash between the metaverse and crypto-native assets. I think the integration of these two things is inevitable, and it will happen faster than people imagine.

Fred: Tim recently had a very good podcast where he talked about the infrastructure needed for the metaverse. If you listen to the whole podcast, it serves as a good way to send a red alert to the world, "This is crypto, the century of crypto."

Blake: The gaming sector especially faces these issues, as those centralized platforms actually own these assets. So gamers might be more aware than most that this future trend is not surprising, as users would say, "I bought this skin, why can't I transfer it to another game?" It currently feels inevitable.

Fred: One thing that might be underestimated is how many kids are growing up in these virtual worlds, so these ideas might feel more intuitive and normal to them. Not only that, kids understand finance, and they love to create their own culture and participate in it more directly in any way.

Jesse: Since we last discussed, something remarkable has happened: besides the crypto-native or gaming-native kids, many others have appeared at the doorstep of the crypto space and learned behaviors that were extremely obscure to them 6 to 12 months ago. For example, installing crypto wallets in browsers and on phones, signing transactions, and paying gas fees—things that Web 2 people laughed at—have already been mastered by millions.

Fred: MetaMask announced a few days ago that it has 5 million active users monthly. Everything is starting to feel very real. Even some of those experiences, like TopShot, people debate whether they are really cryptocurrency. I think to some extent, the answer is that most things using crypto are becoming commonplace for everyone.

Jesse: I think that's the ultimate direction for NFTs, but interestingly, some people seem to prefer the complete crypto experience, including all the awkwardness, because it's real. It's fascinating to predict a year's development in this conversation, whether people want abstraction or want to truly own their things and have the feeling of being able to carry it with them and interact with it anywhere.

Fred: Another dimension that people might underestimate is how high the possibility of automatically earning rewards on the internet for various behaviors will become with the surge of cryptocurrencies. If you are a big influencer on Instagram, you can currently establish various paid collaborations directly with brands. In the future, it might just be that you take a photo with a product showing, whether intentionally or not, the image will be scanned, and you will automatically earn rewards.

If you are a software engineer contributing code to a crypto protocol, you might also automatically earn rewards. There would be no employment agreements.

At some point, kids will no longer open bank accounts but will just need to have a crypto wallet. There will be significant progress by then. It's like, "This is a downloadable widget that applies to all content on the internet."

Blake: In a crypto environment, everything is APIs and your data—what you actually share, what you choose to support, all these choices you make—can be stored with your information, and if you want, you can share your chart information with friends for certain purposes. This indeed empowers users in many ways.

Fred: I think people have not yet truly accepted that crypto or blockchain will become the only source of truth for everything in digital life, and digital life is becoming a large part of life. This includes bank accounts, reputation, identity—all these form factors coming together.

Jesse: To summarize, some of the ideas we discussed a year ago have yet to materialize. One is the tokenization of physical goods. The other is social tokens. We are still working to figure out the product-market fit.

The tokenization of physical goods will definitely become a reality. The logistics of the real world have not yet fully been packaged into the blockchain, but they will eventually connect. Social tokens will naturally emerge, essentially through these investment clubs purchasing NFTs from creators and then creating communities around those NFTs, where community tokens or access to that community ultimately become something akin to social tokens for the creator's fan base.

Blake: Regarding social tokens, I can't specify how it will happen, but I think at some point, people will hold these tokens, whether earned or purchased, and having these social tokens will unlock access to the community or access to the creator, or both.

Physical goods are indeed constrained by logistical bottlenecks. This makes it difficult for me to push this issue further, but at some point in the future, you will be able to own just a small part of a Yeezy, and that is indeed inevitable. It seems like something that can be easily achieved.

Fred: Tokenizing physical goods will be similar to Webvan in the early internet. It wasn't an idea that would succeed early on, but it will eventually succeed. We will soon see people trying to implement this idea again.

Social tokens: it sounds like we are all still very confident about it!

Observing what happens with cryptocurrencies and creators a year later is very exciting.