Devin Finzer - An Everything Store for Digital Assets - [Founder’s Field Guide, EP. 53]

My guest today is Devin Finzer, co-founder and CEO of OpenSea, the world’s largest NFT marketplace. In a journey that started like many other founders in the space, Devin went deep down the crypto rabbit hole in 2017 and became particularly fascinated with the potential behind digital assets. During our conversation, we touch on the origin story of OpenSea, how Devin differentiates between the spectrum of NFTs in the market, and what he sees as the opportunity in the future for the industry. We also talk about the various risks within a blockchain, from security dynamics to market speculation. I hope you enjoy this great conversation with Devin Finzer. For the full show notes, transcript, and links to mentioned content, check out the episode page here. ----- This episode is brought to you by Canalyst. Canalyst is the leading destination for public company data and analysis. If you've been scrambling to keep up with the deluge of IPOs and SPACs these days, Canalyst has models on Robinhood, Marqeta, Grab, and everything in between. Learn more and try Canalyst for yourself at canalyst.com/patrick. ----- This episode is brought to you by Eight Sleep. Eight Sleep's new Pod Pro Cover is the easiest and fastest way to sleep at your perfect temperature. Simply add the Pod Pro Cover to your current mattress and start sleeping as cool as 55°F or as hot as 110°F. To embrace the future of sleep and get $150 off your new mattress go to eightsleep.com/patrick or use code "Patrick". ----- Founder's Field Guide is a property of Colossus, Inc. For more episodes of Founder's Field Guide, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @patrick_oshag | @JoinColossus Show Notes [00:02:56] - [First question] - When he first thought up the genesis of OpenSea [00:06:00] - What is listed on OpenSea, assets and volume, and the scope of the platform [00:07:26] - Thoughts on potentially becoming the current era “everything store” [00:09:22] - How they managed to become the main NFT trading platform [00:12:28] - What NFTs are, their various classes, and ways they’re stored on the blockchain [00:15:25] - How much transaction and auction volume happens on-chain [00:17:07] - Profile picture style NFTs and what’s exciting about them [00:19:24] - ArtBlocks and the mass interest in AI-generated art [00:21:22] - What he’s learned and seen about the emerging crypto gaming space [00:24:38] - The user experience of buying an NFT on OpenSea [00:26:45] - How the ownership transfer works between wallets [00:28:04] - Whether or not they have plans to partner with other companies [00:30:32] - How they think about what gets placed on OpenSea and why [00:32:09] - Thoughts on take rate and their 2.5% take rate of transactions [00:33:22] - Why their take rate is so low compared to other sale platforms online [00:34:47] - OpenSea’s relationship with the Ethereum blockchain and other integrations [00:36:50] - Perspective on wallets both as businesses and products [00:39:16] - Potential risks and the dark side of the unregulated NFT space [00:40:48] - The massive boom and bust cycles of crypto and the high prices of NFTs [00:41:59] - Interesting areas of Web3 that are in development today [00:44:19] - The project he’s enjoyed watching grow the most in the crypto world [00:46:42] - What OpenSea might look like in the future if the best-case proves true [00:48:59] - The kindest thing that anyone has ever done for him

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

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• 0:43Patrick O'Shaughnessy?

  updating models, Canalist is now used by over 400 institutions, including the largest money managers globally, and by a number of guests on the show. With detailed company-specific models and data on virtually every public company, Canalist's clients are able to ramp up faster, update models instantly, and incorporate the highest quality fundamental data into any workflow. If you're a professional equity investor and haven't talked to Canalist recently, you should give them a shout. Learn more and try Canalist for yourself at canalyst.com/patrick. That's C-A-N-A-L-Y-S-T.com/patrick. This week's episode of Founder's Field Guide is sponsored by Eight Sleep. Eight Sleep's new Pod Pro cover is the easiest and fastest way to sleep at your perfect temperature.

• 1:25Patrick O'Shaughnessy?

  It pairs dynamic cooling and heating with biometric tracking to offer the most advanced solution on the market. Simply add the Pod Pro cover to your current mattress and start sleeping as cool as 55 degrees or as hot as 110 degrees. It also splits your bed in half, so your partner can choose a totally different temperature. I was so impressed after using Eight Sleep that I became an investor. To embrace the future of sleep and get $150 off your new mattress, go to eightsleep.com/patrick or use the code PATRICK. Hello and welcome, everyone. I'm Patrick Rochaunese, and this is Founder's Field Guide. Founder's Field Guide is a series of conversations with founders, CEOs, and operators building great businesses. I believe we are all builders in our own way, and this series is dedicated to stories

• 2:10Patrick O'Shaughnessy?

  and lessons from builders of all types. Founder's Field Guide is part of the Colossus family of podcasts, and you can access all of our podcasts, including edited transcripts, show notes, and resources to keep learning at joincolossus.com.

• 2:26Speaker 01

  Patrick O'Shaughnessy is the CEO of O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

• 2:51Patrick O'Shaughnessy?

  My guest today is Devin Finzer, co-founder and CEO of OpenSea, the world's largest NFT marketplace. In a journey that started like many other founders in the space, Devin went deep down the crypto rabbit hole in 2017 and became particularly fascinated with the potential behind digital assets. During our conversation, we touch on the origin story of OpenSea, how Devin differentiates between the spectrum of NFTs in the market, and what he sees as the opportunity in the future for the industry. We also talk about the various risks within a blockchain, from security dynamics to market speculation. I hope you enjoy this great conversation with Devin Finzer.

• 3:28Patrick O'Shaughnessy?

  So Devin, with stories like OpenSea's, which now appears like an overnight success, I always like to go back and pick apart the early days first because I know everything's not always easy. And maybe the beginning point for our conversation can just be when you first conceived of this concept of OpenSea and kind of describe what that early conception was, and then we can pick up the story there and go into all aspects of what's interesting today.

• 3:53Speaker 02

  Sure. Yeah, so the way that we came across the idea for OpenSea was first started with crypto. We were just, my co-founder and I were just really excited about what was going on in crypto. There was all of this philosophizing about the future of the internet, future of finance, these protocols, autonomous organizations, and we were just really interested in that, just reading all the white papers, kind of the classic falling down the crypto rabbit hole situation.

• 4:19Speaker 02

  CryptoKitties hit while we were working on this other idea, which was around decentralized network for sharing internet bandwidth that was very much in its infancy. But CryptoKitties, when it happened, which was the first NFT, it was this digital cat breeding game where you could buy and sell these cats and trade them on the blockchain. It was just really interesting to see a blockchain-based application oriented towards a consumer audience. So for a lot of people, it was the first time they were ever installing MetaMask, which is a browser-based Chrome extension that allows you to have a wallet inside of your browser. And it was really the first time that people were getting their hands on what people now refer to as Web3. That was just really cool. We sort of joined the

• 5:04Speaker 02

  communities. And one of the exciting things about CryptoKitties was the fact that you could permissionlessly build other applications on top of CryptoKitties. So for example, someone built something called Kitty Race, which allowed you to take your CryptoKitties, which again, you kind of owned on the blockchain, and race them inside of this other application. Or like, there was something called Kitty Hats, where you could accessorize CryptoKitties. And actually, I was thinking about creating CryptoKitty Battling, just because I thought, you know, what did we find? Why not? Yeah. From there, I was like, oh, well, maybe there's actually like a bigger idea here, where it's not building another experience on top of CryptoKitties, but rather building another experience marketplace for CryptoKitties, but then a marketplace that could span horizontally

• 5:48Speaker 02

  across other NFTs that come online. This sort of idea of interoperability would apply to something that maybe was actually like a much more long-term play. That was where this idea of building a general NFT marketplace came from. The nice thing that happened after that was other NFTs came online slowly but surely. So there was Decentraland Land, which was a virtual world where you could buy land as NFTs. There were a few little like trading card games. There's new things coming out. It seems like this trend is early but legitimate, and some of these things need marketplaces. So OpenSea became the marketplace for these smaller projects.

• 6:32Patrick O'Shaughnessy?

  I love in marketplaces, talking about sequencing and sort of how you made it work and got to a dominant position. So I'm going to come back to that in just a second. I think it's great for us to level set, just with the audience, the scope of this activity today. So can you just give us sort of a general sense of like, what is listed on OpenSea? Like, how many assets or NFTs, whatever you want to call them, are on the marketplace today? What's typical volume, whether quoted in US dollars or in ETH? Just give us a sense of the scope in September, late September 2021.

• 7:02Speaker 02

  I don't know the exact numbers of listings, but there's 12 million items you can explore on OpenSea. If you go and browse our website, you can dig around, you can find an NFT, although that includes things that are not listed on OpenSea as well. Those are things that you can just kind of go and find. In terms of volume, last month, we did $3.4 billion in transaction volume on the marketplace. September looks to be around that same number. I think the crazy thing for us is that we've gone from about $1 billion per month in transaction volume. If you rewind back to August of 2020, to now, the billion. So it's been really exciting to see the NFT space grow and the diversity of projects grow. So there's, you know, there's just a lot of really cool stuff that people are building. There's people who are so excited

• 7:47Speaker 02

  about this. I'm here in New York. You get to just meet lots of people who are building new NFT games, new NFT art projects. It's really flourishing.

• 7:57Patrick O'Shaughnessy?

  One of the observations from a prior podcast guest, I think it was Jeremy Kai, who said this, which is that like, each new generation has its own everything store. And it strikes me as interesting that OpenSea has the potential to be a certain kind of everything store. That number of listings and that volume certainly starts to tell that story. How do you think about the job that OpenSea fills today in this ecosystem and might fulfill in the future? Is that everything store concept right as it pertains to digital assets? How do you think about the scope of your ambition?

• 8:30Speaker 02

  That's a good way of framing it. We're a one stop shop for all of your NFT and portal into this new universe. We've always built our platform very horizontally, meaning that we didn't know what was going to be the most successful use cases for this new type of digital item. And we built generic tool will set allow any project to come online and have a peer to peer marketplace from the get go. And that providing liquidity for these projects turns out to be a really important function. And then on the consumer side, we have a long way to go here, but we do want to be the entry point for people who are learning about how to buy and how to sell these things. We just launched our mobile application, which allows

• 9:12Speaker 02

  us to have a permanent home on people's phone where they can go and see what's trending, see what's interesting and participate in this. What we're really excited about with regards to the everything store idea is just more and more things being tokenized as NFTs. So everything from game items, event tickets, digital art, even physical items. We think that more and more things are going to benefit from this native digital ownership. We hope to serve as many of us as we can. We also acknowledge that there's going to be lots of different portals to visualize and view and explore and trade these things. But we want to be the one that solidifies, builds a trusted relationship with consumers.

• 9:53Patrick O'Shaughnessy?

  So obviously, this business model is elegant and well understood, that of the marketplace, the two sided marketplace buyers and sellers, things like liquidity that matter a lot. There's things like a clear network effect that starts to build. I always love the joke that eBay's second employee's job was literally like opening checks that were being mailed in. So, you know, a marketplace that works as a business and wins tends to be an incredible business model, but getting going is hard. So you are where you are, but I'm very interested in that million dollar transaction volume stage of the business. And sort of what you saw, what were you watching back then? There's countless other competitors. I can't even name them all. There's a lot of places that want to be the marketplace for NFTs and you

• 10:35Patrick O'Shaughnessy?

  seem to have sort of one pole position. So why do you think that was the case? How much of that was deliberate strategy on your part? And what was that strategy early on?

• 10:43Speaker 02

  Yeah, well, I do think a big component of it was just being the first and earliest and then continuing to invest in the features that users wanted and sticking around, right? So back in 2017, when we started, late 2017, it was not a very competitive environment, right? It was, there were a few competitors and there wasn't some magical strategic move that we made to best our competitors. Really, it was just people kind of left because there wasn't much traction. And so it was more really just being excited enough about the fundamental idea to wait to kind of work on it for three or four years. Honestly, if I was to attribute the one thing, it was just being early and sticking around, as unsexy as that might sound.

• 11:27Speaker 02

  I do think an important strategic decision for us was being horizontal from day one as opposed to trying to like really nail a specific vertical and the land and expand model. And you can like pattern matching and say, oh, that's sort of what Amazon did for books. Really strongly believe it's like every industry is really different. It's very dangerous, I think, to just like take the playbook of one trend and then apply it to another one. Because Amazon did this, we should do this. It's, you need to really think about these things from first principles. The reason that Amazon started with books, they're very different business than the business of period of your marketplace for digital items.

• 12:06Speaker 02

  And, and I think the better comparison for us is eBay was very early and sort of was the place where you could do this and just continue to invest in the customer experience. And of course, Amazon eBay, right? That story played out differently over time. But yeah, I think just like really staying horizontal and not being overly dogmatic about what use cases would work. If you look at the recent growth, it's been very surprising projects. It's these sort of crypto cultural phenomena, the CryptoPunk, sport, API, clubs of the world. As opposed to, we would have bet on games if we had to bet on something. And games are certainly, they have a ton of potential and some of them are doing well.

• 12:49Speaker 02

  But if we had built a marketplace just for games, then we would have missed out on, on all of the opportunity that we've seen in like collectibles and art. So I think that was probably just the most important piece of the strategy.

• 12:59Patrick O'Shaughnessy?

  Can you say a little bit about technically what's going on here with NFTs and the different kinds of them? Because I remain myself a little confused about how much the thing itself, the pixelated art in the case of CryptoPunks or something, is literally itself stored on a decentralized blockchain versus some sort of pointer to an image that's stored not on a blockchain. And I think that difference is just, maybe it's too in the weeds, but to me, it's fascinating. And I'd love you to explain kind of literally what are NFTs? And are there different classes of them?

• 13:32Speaker 02

  The way to think about an NFT is it's really just the record of ownership of some unique identifier. Let's take CryptoPunk number 12345, for example. The smart contract on the blockchain has this record that says Devon is the owner of this particular identifier. But the metadata, the name of that thing, the description of it, the image associated with it, could, to your point, be stored in a variety of different ways. So on one extreme, you have storing that data on-chain. So meaning that literally in the blockchain, you have the name, code the image in some capacity, which usually is not possible,

• 14:17Speaker 02

  but various ways of trying to do that. And you have everything on-chain, on-chain metadata. The other way, which was what CryptoKitties did, for example, is you just say, okay, there's some service out there, some server, that if you hit a URL on it, it's going to return the metadata. And that's where an application that wants to show you your CryptoKitties, they have to kind of go there and grab that data, and that data can change over time. You can kind of see that the on-chain way is a lot more permanent, it's a lot more immutable, and there's sort of these guarantees around it. And the off-chain way does not have a lot of those guarantees. And there's somewhere in the middle where you say like, okay, we're not going to put it on-chain just because it's expensive. That's really the constraint of putting the stuff on-chain. But we're going to put it on this decentralized

• 15:01Speaker 02

  file system, one of which is IPFS, and it's also RWeV. And it'll be off the blockchain, but at least it has these other... Characteristics where it's permanent and immutable. So there's a whole spectrum. And I think one interesting thing that's happened is applications like OpenSea, for example, we go and pull that data from whatever source. We'll pull it from the chain, we'll pull it from IPFS, or we'll pull it from centralized data sources and we'll sort of be this giant cache. And we're very much incentivized to sort of keep those metadata sources accountable, right? Like if someone just kind of went and changed a thing, while they could do that, it would be sort of against the interest of the people who hold it. But there are certainly people, these arguments resonate with me, that think like only NFTs

• 15:46Speaker 02

  that have on-chain metadata are valuable because you need everything to be permanent and immutable versus the more flexible approach where some of them have off-chain metadata.

• 15:56Patrick O'Shaughnessy?

  Certainly is my, from the cheap seats bias, that a CryptoPunk that's purely on-chain is way more interesting than something that relies on less secure, less immutable, less provably scarce sources. So that's really interesting. It begs the question, like, how much of your volume, if you know, transaction volume or auction volume on the platform is in one category versus the other? It seems like having to be unchanged is a huge constraint because it's just limiting, like how big the file can be and a lot of stuff just wouldn't fit. So how do you see that today? Like, what's the distribution today? And how do you think that plays out in the future?

• 16:29Speaker 02

  What I'd say is like, it's really important for collectibles and art where there's not a specific environment where you're supposed to be using this thing. There is a CryptoPunk's website, but it's sort of like this autonomous thing where like, you can take your CryptoPunk kind of wherever you want with you. And for that reason, it's really important that the metadata sort of lives on the blockchain. But on the other hand, a game that's using, let's take like Zed Run, for example. So Zed Run is a horse racing game. When you buy a horse, you're not just buying it as like an art piece or a collectible. You're buying it because you want to like race it against someone else's horse in a game.

• 17:09Speaker 02

  There's so much that relies on the game running, Zed Run being an actual game that you can play, that it almost doesn't really matter where the metadata is stored. Because if the game shuts down, then your horse is not really that useful. For art and collectibles and these sorts of things, having it be this sort of self-contained thing makes a lot of sense. But when you're using it for more utility-based applications like games, it almost doesn't matter as much.

• 17:38Patrick O'Shaughnessy?

  Maybe I could ask a few questions about some categories of NFTs, just to hear your fun take or impression of what's interesting about them. And I'm borrowing here from a taxonomy system that I saw. I think it was Magdalena Kala that put it up on Twitter or somewhere. And the first is this, what I'll call profile pictures category, whether that's bored apes or crypto punks. What's exciting or interesting to you about this category? Because it seems to have been kind of the early dominant one.

• 18:04Speaker 02

  What's interesting about that is if you zoom out, I think you can look at crypto as this cultural movement. I would say that when you fall down the crypto rabbit hole, there's certainly some people who can like straddle to areas of interest, like maybe they are in traditional tech, but they're also in crypto too. But I would say a large percentage of people just end up devoting their entire lives to crypto, quitting their jobs, either starting a crypto company, dilly-dallying around, messing around with DAOs, all of these things. You could maybe say that about some other industries where there's people making this mass exodus into VR, AI. But I don't think that there's like the extreme cultural

• 18:48Speaker 02

  movement that you see in crypto. And I think these specific types of NFTs, the bored apes, crypto punks of the world are really playing into that cultural movement and providing people with a way to show off and appreciate each other in this environment. And it is a weird one. People are spending lots of money for these things. And I don't think it's like a fully positive cultural movement. That's what's interesting to me is that you talk to people today and they're devoting their entire lives to crypto and they're sort of, all of their friends are in crypto and that community is slowly but steadily growing. And you're sort of have this really interesting ecosystem that people refer to as web three. And NFTs are providing a social component to that. You have something that

• 19:33Speaker 02

  you can like show off on your Ethereum address where previously was really just the DeFi applications that you interact with, which wasn't really a social experience. So that's kind of what I think is interesting about it.

• 19:43Patrick O'Shaughnessy?

  So it's almost like the first step in crypto and NFTs as bridging into the category of digital identity.

• 19:50Speaker 02

  I think so, yeah.

• 19:51Patrick O'Shaughnessy?

  Your profile is no longer your Twitter account, it's now your wallet. The second one that's, I think, fascinating maybe to mention briefly, because I know there's been a lot of activity in it, is this idea of generative art and the project Art Blocks specifically. Can you talk about that project and what that means and why you think it's met with such incredible amount of interest and crazy prices for these NFTs?

• 20:12Speaker 02

  So the idea of generative art is basically art pieces that instead of just being created by a human are created from data source or like some generative algorithm. You can have larger numbers of them where each one is unique and they have these interesting properties associated with them versus each one having to be created individually by a human. And this isn't like a crypto-specific phenomenon, it's just sort of a way of making art. Art Blocks is a generative art project and I think what's interesting is that there are also projects in crypto where taking the existing model for making art where someone creates a piece of art and then sells it and it looks beautiful and it's sort of this original thing.

• 20:55Speaker 02

  But I think what's cool is with generative art, they're sort of fitting the medium of crypto a lot better. So with crypto art, you want to have a good number of people holding a type of piece as opposed to just a single piece. And so this generative idea adds a little bit of a game mechanic to it, makes it so that when you buy something, you don't know necessarily what it's going to look like and that's sort of this fun dynamic. The way I would look at it is it's just art but tailored to the medium of blockchain and NFTs that I think has really resonated with people. That's kind of why I think it's doing pretty well as a project.

• 21:32Patrick O'Shaughnessy?

  I would encourage people to check out Fidenza specifically. Cool color flow pattern looking things that, like you said, are generated by algorithm and they're kind of mesmerizing. It's crazy what prices they fetch, so I'm certainly not commenting on the value or the price, but just as a project, I do think everything you just said is sort of encapsulated by that project. It's worth checking out. Beyond these profile pictures and generative art, what other categories do you most have your eye on? You mentioned games, like I'm curious what you've learned or seen thus far, because that would have been my guess, too, that games is a use case that we know is popular globally. There's tons of people that play games, tons of games have objects in them that are valuable from a cosmetic or utility standpoint. So it seems like an obvious market to dominate NFTs.

• 22:16Patrick O'Shaughnessy?

  Why do you think that hasn't yet been the case? And do you think it will become the case?

• 22:20Speaker 02

  I think gaming has been successful in some regards as it relates to NFTs and crypto. So Axie Infinity, I think, is a great example of a game company that has had a very successful business, building a blockchain game and a community around it. There's questions around the longevity of their game and whether or not people will keep on playing it without the economic incentives. But I think that with games, it's just sort of this cyclical phenomenon where you have the extreme early adopters, the Axie Infinitys of the world, some of those early companies, Anamokka Brands, I think is a good one that were like extremely early into blockchain, testing things out, seeing what works. And I think the thing to remember is it takes a while to build a good game.

• 23:04Speaker 02

  And so often the feedback cycle is a little bit prolonged. You have, I think what you're seeing right now is a lot of really exciting early game companies jumping in the space, starting to develop, and I think we'll see the fruits of that labor sometime in the next three to six months. I think the fit with games, the thing I'm excited about with games, zooming out philosophically is if you think about games today, for the most part, there's command and control economy where there's no imports, there's no exports, have to build all of the economic infrastructure yourself, entrepreneurship in the game, but often shut down by the people who control the economy. And so the question is, well, what if you kind of flip the script and you said,

• 23:48Speaker 02

  instead of a command and control economy, we're going to create a free market from the beginning, and we're going to allow people to buy and sell in open marketplaces. We're going to allow people to leverage DeFi to have more entrepreneurial activities in the game. And it might be a very different look. Thing than the traditional game. It might look more like a virtual world or social experience with real economic activity happening in it. But I do think that that's the blockchain bring is this sort of free market. The interoperability, right? So if you look at projects like Loot, which is this very basic project where they just issued NFTs that are these game item type things and people can build games on top of them.

• 24:28Speaker 02

  That's really powerful, in my opinion, and it might be really early, but having these items that can cross through and move through different ecosystems is sort of where I see this all becoming really interesting. And I think the reason it hasn't happened in a huge way yet is just the development cycle is a little bit longer and takes a couple of iterations for people to get it right.

• 24:49Patrick O'Shaughnessy?

  So if we could come back, all these interesting categories will continue to proliferate in unexpected ways. I'd love to now come back kind of to OpenSea, the business and the platform, and just hear a bit more about how it mechanically works. So I have to remember that like not everyone out there is, most people probably haven't bought an NFT. They probably don't have a a self custody wallet. So if I wanted to buy something on OpenSea, what are the literal steps that I would have to have done before showing up to buy something? And then once I buy it, where does it go? Just give us like a, the story of a transaction as it would happen on OpenSea.

• 25:21Speaker 02

  The way that you interact with OpenSea is you first get your own crypto wallet. So the most popular one these days is called MetaMask. And this is your wallet where you can self custody both your crypto, so your Ethereum, and then as well as your NFTs. That's the first step. To buy an NFT on OpenSea, you will need to first buy crypto. We do have a widget that works in some locales to purchase crypto directly on OpenSea, but there is still this sort of process whereby the first step is you get Ethereum and then you buy an NFT in Ethereum and you're going to be submitting a transaction to the blockchain and buying this thing directly from the person who is selling it facilitated by a smart contract.

• 26:05Speaker 02

  There's a lot of technical details that go into that. What's most exciting is that once you've bought that NFT, I think one source of confusion is a lot of people think it's like in their OpenSea account or something like that, or in OpenSea or, you know, it's somehow tied to OpenSea. And really the reality is that it lives inside of your wallet. And OpenSea is more of just like a portal to view the stuff inside of your wallet and list them for sale. But we're really just providing this lens into your wallet. We can't just destroy your NFTs or we can't really do anything to them without your permission. The other exciting thing about that is because they're in your wallet, you can go and like use them in some other context. So you could buy like a piece of art and then you can go to some other website and

• 26:50Speaker 02

  connect your wallet and then like put that art on display in some like gallery or something like that. You could buy a piece of clothing for the game Decentraland, which is that sort of Second Life type style virtual world game. And then you can go into the Central Land and connect your wallet and then you can put that clothing on. I think the magic of NFTs is really that you own them in your own wallet and then you can use them in a variety of different contexts.

• 27:16Patrick O'Shaughnessy?

  Just literally mechanically, I'm interested in how the transfer works. So let's say you've got a Bored Ape you want to sell me, I've got ETH, I want to pay you to get it. How does that function? Like, is there some sort of escrow account that you wait till both are in escrow and then you cross the assets to the two people in the transaction? Or if not, like what is actually happening? How does that work between the wallets?

• 27:36Speaker 02

  When you list something for sale, you basically give permission to this smart contract to transfer it to a buyer in a certain set of circumstances. And those certain set of circumstances are essentially when the other person supplies the requisite amount of payment. It stays in your wallet and when someone purchases it, they submit the transaction to the blockchain and in sort of a single atomic transaction entirely succeeds or entirely fails, both the currency is transferred to the seller and the item is transferred to the buyer. And so what's interesting about that is if we were to build this in sort of more of

• 28:18Speaker 02

  a traditional fashion, we might say, okay, you know, you want to list a thing for sale? Give it to us and then we'll transfer it to the buyer whenever they want it. That is not the case with OpenSea. It never sort of leaves the hands of the seller until the purchase is actually made.

• 28:33Patrick O'Shaughnessy?

  That's completely fascinating. It highlights your point earlier about maybe why this is also interesting with wallets as digital identity. So you get something and now you can show up and plug that asset into all sorts of different applications elsewhere. How much time do you and your team spend thinking about that part of it? Or are you really just focused on, I guess it's kind of like a partnerships question. Like, are you partnered with digital gallery company or something? Because it's kind of a key part of the ecosystem. Or is your opinion, let's stay heads down and just have the best marketplace and let others deal with other uses of the assets once they're in someone's wallet?

• 29:08Speaker 02

  We've been traditionally like a very small company during this sort of hyper growth phase. So generally speaking, we have to be very rigorous about like what we do and what we don't do. But we are acquiring more resources on the team. We're actively hiring. So that's always a constraint for us is how much can we do with the team that we have? That being said, I think the biggest area where we've been pioneering and really trying to push the space forward regarding sort of this idea of interoperability, the ability to bring an NFT from one application to another is around the metadata standard, which we talked a little bit about earlier. You can basically richly describe what this NFT is. So you can give it a name, description, image. You can also give it properties that basically say like this NFT is sort of rare

• 29:51Speaker 02

  or like has gold chain or something like that. And this metadata standard allows other applications to go and like surface these things in interesting ways. We also provide an API that allows anyone to easily pull NFT data. Through these sorts of things, we are fostering more and more interoperability between applications. It is really important for us. We were so early that the metadata standard, which is entirely open and OpenSea sort of is the place where you come to learn about that and understand it and implement it. So we have this exciting opportunity to really push it forward as the space evolves. And it's something that we want to continue investing in over time. And then just generally speaking, we are an extremely partnership heavy company.

• 30:35Speaker 02

  We love working with every single application in the space from the smaller artists to the game companies that are just starting up. To we've worked with Mike Tyson, Rob Brinkowski. We've worked with the bigger ones as well, Golden State Warriors, athletes, musicians, you name it. And so we both want to kind of help the people who are coming up from the grassroots and then also be there for these bigger companies and brands that are trying to learn about the space as well.

• 31:03Patrick O'Shaughnessy?

  For the supply side of all this, the artists, the creators, the people coming up with the NFTs, the homepage or near the homepage of OpenSea has to be the world's most valuable real estate, and it's obviously limited. Like, I go to the website, I see a certain handful of things and not others. How do you think about your role, like, governing what gets on to that homepage? It's like the ultimate shelving space on the internet right now. And I'm sure it's something that would be hard to appreciate all the nuance that goes into your thinking around it. But at a high level, how do you think about that real estate and being judicious about what gets on there and why?

• 31:37Speaker 02

  We have a responsibility to our community to create really a trusted open platform where we're surfacing content that's high quality and that also provides sort of a level playing field for smaller artists who are up and coming, but then also bigger projects that have more resources and want to promote. We've talked about how to sort of make this less centralized. Today, it is curated by the OpenSea team, but we are in the early phases of exploring, how can we make this more of a community-inspired thing? There's a lot of different exciting opportunities there, you know, working with some of the DAOs, we're working with some of the organizations that are heavily involved in NFTs.

• 32:18Speaker 02

  But for the time being, we try to provide opportunities for smaller and bigger players on our homepage. And then there's also some of our content on our homepage that is algorithmically taken from the trending collections that are rising in popularity. So it's sort of a, you know, early exploration. We have the basics up right now, but we'll be refining and iterating over time.

• 32:40Patrick O'Shaughnessy?

  How do you think about the major business choices that you have? I guess the main one here is take rate. What percent of transactions goes to the OpenSea business? How much did you deliberate that? And how much do you expect it to be static or based on the kind of transaction, since that's kind of at the core of your business model?

• 32:58Speaker 02

  Yeah, currently it's two and a half percent. The way that it works today is projects can specify a take rate on top of our two and a half percent fee that goes directly to them. OpenSea always takes two and a half percent. Let's say I'm a new game developer and I want to have people trade my NFTs. Well, wouldn't it be great if I could actually benefit from my NFTs being traded? So that's a piece of functionality that we added early on in this sort of intuitive way to align incentives between projects and the platform. We're certainly open to adjusting the fee over time. We think two and a half percent is pretty fair relative to other NFT marketplaces that exist. Some of our platforms, I think, are in the 10% range.

• 33:41Speaker 02

  If you look at consumer internet companies, tend to be a lot higher. We think for the service we provide, helping people discover, find, explore, buy and sell, the two and a half percent is reasonable. I believe it's like the lowest space at the moment.

• 33:53Patrick O'Shaughnessy?

  I'm interested in why it's so low relative to, like you said, consumer internet. Like I think eBay is like 15% or was 20%. If you look at take rates generally, there's like some kind of central clustering around 20% as a very common take rate for platforms like this. I suppose part of this is the smart contract relationship you described earlier and the lack of physical goods or inventory or anything that allows this to be lower. Is there anything else that's interesting that explains that pretty big gap between your take rate and the more traditional take rates that the internet's seen?

• 34:25Speaker 02

  Crypto is maybe more sensitive to platform fees than other industries. Way back when, there was this talk of decentralized marketplaces disintermediating the Ubers and Airbnbs and none of that has played out. But the philosophy there was are these companies really providing a service? Should this be done by more of a decentralized network of things? And then the other thing is this is all digital. We're not dealing with physical items that are moving in hand. So if you look at like StockX, they're sort of providing this service of custoding the items, verifying. It is an interesting thing to think about what the sensitivity is on that, but we just wanted to be fair to the crypto community.

• 35:08Speaker 02

  And we do get some people who think that shouldn't be any fees. That's their mentality, but then we also get people who think that the two and a half percent fee is either fair or even maybe too low.

• 35:18Patrick O'Shaughnessy?

  How do you think about the world of, I'll call it, Layer 1 blockchains and their relationship to NFTs going forward? It seems like Ethereum has been the single dominant blockchain where all of this stuff is happening. And there's reasons for that. There's also reasons for concern, especially like transaction costs or gas fees being so high on the Ethereum network. How do you think about OpenSea's kind of relationship to the different blockchains? And what do you think will happen in the future? Like, will there be more NFTs on other blockchains? Do you care? What's your view on all that?

• 35:51Speaker 02

  We definitely envision a multi-blockchain future, and it's already happening. There's several blockchains that have gotten significant traction around NFTs. Flow, Solana, Tezos. We also have already made our foray into multiple blockchain. We currently support Polygon, which is a Layer 2 on top of Ethereum, but basically think about it as a separate chain altogether. I do think that there is a very strong network effect going on Ethereum today, which is that the number of people who have installed MetaMask or wallets and understand how to use Ethereum, it's a significant community now. And the interoperability between applications, this idea that I touched on of being able

• 36:35Speaker 02

  to have one wallet and move your stuff between apps is really powerful. Ethereum is really the furthest along there. Additionally, on Ethereum, you have the entire DeFi infrastructure world where you can collateralize or take loans out on different tokens and things like this. So there's this whole really rich ecosystem happening on Ethereum that I think is going to be challenging for other chains to fully replicate. But of course Ethereum does have its challenges and starting fresh, supporting different programming languages, rethinking kind of some of the fundamentals is worthwhile to think about. We've built OpenSea in a way that we can add additional blockchains as they make sense

• 37:16Speaker 02

  to support, and you'll be seeing some interesting stuff from us there pretty soon.

• 37:21Patrick O'Shaughnessy?

  Can you teach us a little bit about your perspective on wallets and the role that they might play, both as businesses and as products, in this ecosystem going forward? You've mentioned MetaMask several times, and I know there are lots of others. Just describe why the wallet as a piece of all of this is so interesting and what you think it might unlock in the future.

• 37:41Speaker 02

  Well, I think the first really cool thing to say about wallets is that it's like a bring your own wallet situation. I guess we sort of take this for granted. It is pretty cool that you can use any wallet you want on any Web3 application. If you don't like MetaMask, then don't use MetaMask. So you have this freedom of choice that you really did not have in sort of a Web2 world. Where if you were using Facebook and you could sign in with Facebook, but like you're sort of wedded to the Facebook platform. I guess email is the closest thing, sort of limited in what you can do. It's in the realm of the centralized identity. You can bring any wallet provider you want. So I think that's the first thing that's really cool is that you sort of have this unbundling where the wallet isn't attached

• 38:25Speaker 02

  or the identity isn't attached to a specific application. And then I think the role of wallets, I guess if you just look at what role they're playing today. Well, they're providing a lot of utility around helping people understand what's going on. So if you look at MetaMask, you can see your tokens. You can see your NFTs to some extent in MetaMask. Then you can see what's going on with your transactions. They abstract away and educate people around some of the technical complexity of using Web3 applications. And I think that will just continue to be the case over time. I think MetaMask will continue to improve, continue to support other blockchains and be sort of this portal. If you look at what MetaMask has done to monetize or to provide even additional value.

• 39:07Speaker 02

  One thing that they've done is they provide a way to swap tokens inside of MetaMask. So wallets can start to add new utility on top of their user bases that goes beyond the basics of being able to see your transactions and monetize that. In the case of MetaMask, I believe they take a fee on those swaps. And I can't remember exactly their numbers, but they were transparent on the blockchain. They had a really strong business just by adding that. And I think you'll see interesting things related to NFTs. You know, integrations where you can immediately list on OpenSea from a wallet, which I believe a couple of wallets have explored. So yeah, I think being this portal is an interesting role to play.

• 39:47Patrick O'Shaughnessy?

  What do you think about what I'll call like the dark side of all of this? Typically with completely new standards like this or new markets like this. It's not regulated. There's a lot of Wild West type activity. Famously, early in the Bitcoin ecosystem, there was Mt. Gox. There was use of Bitcoin for illicit reasons like Silk Road, et cetera. What do you think the equivalents are in NFT land that people should be aware of? The sort of dark side of all this, which feels sort of inevitable?

• 40:14Speaker 02

  One simple dark side is just that we're dealing with today is just whenever there's an opportunity to make money or to profit, then scammers come and figure out how they can take advantage of it. So on OpenSea, we have this issue where it's an open platform. It's a horizontal platform, so anyone can come and mint an NFT, which means that you could screenshot a crypto punk and mint it and try to pass it off as a real crypto punk. So that's a problem that we deal with today and we have infrastructure in place to try to limit that behavior. But sort of this cat and mouse game where scammers get more and more sophisticated, they sort of build the systems and then you just sort of have to have that as a marketplace that wants to have a permanent role in the space.

• 40:58Speaker 02

  People are just figuring these things out. So there's all sorts of opportunities for scammers to come and fish people hacking the wallet. We're seeing that every day today, right? Where people are getting taken advantage of because it's such a new space and they just don't understand how everything works. So I think with every new frontier, there's those opportunities and it's sort of the role of platforms like ours to do our best to prevent against them.

• 41:20Patrick O'Shaughnessy?

  I have to ask the inevitable question that people just get mad if I don't ask, even though I think it's maybe kind of a silly question and an obvious answer. But how do you think just about prices? The whole story of crypto has been massive boom and bust cycles. And my personal view, so as not to cop out on it, is that long-term this stuff is super interesting and that there's plenty of bubble-like behavior that everyone likes to use that bubble word. Do you think much about that at all? Do you think that OpenSea, the platform, the business you personally as its leader, needs to like factor that into how you build the product or anything like this? What, if any, responsibility or thinking do you have around some crazy prices and huge booms in these assets?

• 41:57Speaker 02

  There's sort of maybe two lenses. One is just as a business, crypto and blockchain-based applications tend to be very cyclical in nature, where you have these giant waves of excitement and prices moving up, and then you see a cooldown afterwards. And just as a business, you have to prepare from that, from like a cash flow, cultural perspective within the company. And so we definitely keep that in mind and try to look to other companies that have gone through that for advice and wisdom around how to deal with just a very simple industry.

• 42:30Patrick O'Shaughnessy?

  If we zoom further out into OpenSea's role in Web3 writ large, we think of Web3 as like a big map or something. There's lots of different key functions or things being built, whether that's decentralized storage like IPFS that you mentioned, whether that's exchanges, whether that's marketplaces like OpenSea. What do you think the big, chunky, interesting sections of Web3 are that are under development right now?

• 42:55Speaker 02

  Yeah, well, I think DAOs is definitely one. So these autonomous organizations where people can commission work, and many of them are social organizations as well. So I think this idea that there's lots of opportunities to participate, contribute, and profit from Web3, and providing the tools for people to do that, and the jobs of the future in some way. So I think DAOs are an incredibly vital piece of that. I think NFTs are sort of a piece of that, in that they're providing an outlet for creators to really monetize their work as well. I think the idea, the identity layer is an interesting one. I do think that it's challenging to start an identity company fresh. I think identity tends to sort

• 43:38Speaker 02

  of be bundled with the most successful applications, or you could argue that MetaMask is in an interesting position as an identity layer, or ENS is an interesting.

• 43:50Speaker 02

  So E N S is sort of a naming system for Web three whereby you can

• 43:55Patrick O'Shaughnessy?

  It's like a website address or something, but for a person.

• 43:58Speaker 02

  Exactly right. You can own dfinzer dot ETH and instead of sending to the hexadecimal address, you can send ETH or send enough TBS to to that human readable name. So those sort of like infrastructural components are really exciting. And then, of course, the other big obvious chunk is just the infrastructure layer, the layer ones, layer one blockchains, layer twos around Ethereum, the ability to move between those layer ones and layer twos is a big chunk. And then, of course, you have over the last four years, the evolution of DeFi as sort of this underlying financial infrastructure that has really helped the N F T ecosystem flourish by giving people the right tools to whether it's buy and sell

• 44:39Speaker 02

  with stable coins or take loans out or whatnot. It's a pretty rich intertwined ecosystem.

• 44:46Patrick O'Shaughnessy?

  Taking your leadership in business hat off, what project have you just most enjoyed watching and learning from in the world of N F Ts?

• 44:54Speaker 02

  Probably one of my favorites is a project called Crypto Vauxhalls. So Crypto Vauxhalls is a virtual world that started, I think, early 2018. And what was cool about it was it was just one person at the time. They showed up to OpenSea. We didn't even know who they were, but they started selling a couple of parcels of virtual land. And when you own these parcels, you could build things inside of them. So by buy a parcel, like build some museum and sort of like Minecraft where you like building the land sold. I don't know. At the time, I'd have to do some math to figure out how much is probably like 20 or 30 bucks per parcel or something like that. Cause ETH was really low and point one ETH or something like that, right? When ETH was quite low. And what happened over time

• 45:38Speaker 02

  is he just kept on building the website. He kept on building the tools where you could build better and better experiences. He kept on selling land. And then fast forward to today, land, we've had bundles of land sell for hundreds of thousands of dollars. And you know, it's still a pretty small community, but it's this really rich world and it's super interoperable and complementary to all the other things. That are going on. So for example, another feature that CryptoVoxels added was the ability to bring in your NFTs inside of the world. So you can create like a CryptoPunks museum inside of CryptoVoxels. So a lot of people are doing that. Not long ago, I went on like a digital art tour. You have your avatar, you have wearables and things like this. Everyone's going around and looking at digital art and stuff.

• 46:23Speaker 02

  And so it's just this really cool community. And then the reason I open C specifically is excited about is we've powered their entire economy. So all of the buying and selling happens on OpenSea and the developers didn't have to go and create all of that infrastructure. They can just use us for both the initial sales and the secondary sales, and they get to monetize that. Every time a CryptoVoxels piece of land sells, they take a cut. So it's really just this cool open ecosystem that has the early community that participated in it. The landholders have really benefited from being early in it. And so I think that's one of those examples of projects that really came from grassroots and has stuck with it over time.

• 47:03Speaker 02

  And I really do think that sometime in the next while, we'll see a renaissance of these virtual world type things happening that are very complimentary to what's going on with NFC more broadly.

• 47:13Patrick O'Shaughnessy?

  If we take our future lens and put it on and think 10, five years into the future, something like that, stretch your imagination the most, how do you think OpenSea will be most different than it is today? So it's this incredibly pure, elegant, incredibly successful, high liquidity marketplace today. You mentioned APIs and like other people building stuff because of OpenSea's infrastructure. Where do you think this goes? Like, what's the kind of most fun, dreamy version of the future of what this might become as a platform?

• 47:42Speaker 02

  What's most exciting is just sort of the expansion of NFTs into new areas. So right now, the use cases are collectibles and art and a little bit of gaming, but I think. Ultimately, this is something that could impact every single industry. It's just sort of a matter of when it makes sense. So, physical items, there's been a few projects where physical items are kind of turned into NFTs and bought and sold as NFTs, but then redeemable for the actual physical item, which is really cool. So you can imagine like a whole chunk of OpenSea that's devoted to buying and selling physical items. I don't know if we'll get into this area, but I do think generally, real estate could benefit from being tokenized as an NFT and maybe there are some interesting later-stage applications of that.

• 48:27Speaker 02

  Event tickets, all these things, I think, will start to emerge over time. As a platform, I think we really do want to try to support these verticals as best we can and provide the interface and trading and buying and selling experience that's tailored towards those specific use cases. So, doing a better job supporting games, doing a better job supporting art. I think you'll see sort of a more customized and tailored experience. And then also, maybe this is hopefully shorter run than five years, but also just making this completely accessible to a regular user. Someone can go from zero to owning an NFT in like minutes. I think that's super important. Lastly, I would say just to that end, expanding this to something that billions of people in the world are like using and getting value from.

• 49:11Speaker 02

  I actually do think that that's a real possibility here. I don't think that this is like a niche market. I think it's something that will go more and more and more mainstream and just have a bigger and bigger impact on the world. That order of magnitude shift in terms of the size of the market, I think, will happen over that time period.

• 49:28Patrick O'Shaughnessy?

  What a cool exploration of a cornerstone business and piece of the Web3 ecosystem. I've so enjoyed learning about OpenSea and everything that might be coming. I ask the same traditional closing question of everyone I have on the show. What is the kindest thing that anyone's ever done for you?

• 49:44Speaker 02

  My parents were just incredibly kind to me growing up. And specifically, they were always 100% supportive of whatever I wanted to do. The sort of unconditional love that really provides a strong foundation for feeling like you have the freedom to. Explore your curiosity. And I just don't think that that's always the case with parents. Maybe they have this unstated bias towards certain professions or certain ways of living your life. And obviously, they want me to be a good person. There are certain things they wouldn't want me to do. They just expressed that support of whatever my interests were early on and continue to support it over time.

• 50:29Speaker 02

  I think that was really kind and a really great way to grow up. That's the one that comes to mind.

• 50:34Patrick O'Shaughnessy?

  First of all, awesome answer. Hard to imagine topping that, but it also probably relates intimately to what you've built. This is a very different new thing to have been doing, probably starting in your late teenage years. Without that kind of support, I'm sure maybe the story would have been a little different, or at least a little bit harder. So I think that's a fantastic place to end. Thanks, Devin, so much for your time today.

• 50:53Speaker 02

  Thank you so much.

• 50:55Patrick O'Shaughnessy?

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