Seneca, Art Blocks and Sustainable Communities

Web3 has instigated the financialization of culture. Much has been written to unpack the implications, including gems from Jarrod Dicker, Jesse Walden, Packy McCormick, Patrick Rivera, Cooper Turley, Toby Shorin, Kinjal Shah, Pet3rpan, Mario Gabriele, Fred Ehrsam, Maria Shen, Andrew Steinwold and Li Jin.

It's hard to overstate the TAM unlock instigated by this shift from consumer-object to owner-participant. In Thoughts at the Intersection of Web3 and Creative Culture, I wrote:

Yet, amidst all the rah-rah, I find myself wondering: is this all but a foggy haze, a series of infinite rabbitholes to nowhere? What if macro empowerment were actually micro entrapment? Why, for a social movement returning "power to the person", does web3 feel so dehumanizing?

I started writing as a forcing function for mental clarity. True to purpose, this post is less an exposition of convictions already formed, and more a leisurely stroll to interweave disparate strands floating in the ether. Not from a broad societal perspective, but from the lens of the individual. And specifically, me.

Perhaps somewhere in between the wisdom of the past and the passions of the present lie the roots of a more sustainable future....

I. The Past — Seneca’s Ancient Wisdom

A few days ago, I read (and re-read) a well-known set of essays from Seneca entitled On the Shortness of Life. It's remarkable how relevant the piece remains for our times. The modern plight is demonstrated by Serenus in Seneca's On Tranquility of Mind:

In the context of the current environment, Seneca remains more relevant than ever. At any given point in time, there are just too many interesting things happening, all at once. Amidst the never ending stream of chances gone by, I took a great deal of comfort in that ancient wisdom, which I distilled for myself into four key takeaways:

#1: Opportunity is just a click away. With instant gratification, our attention is constantly there for the taking. Once having relinquished control, it's hard to regain that most precious asset of all: time.

#2: There will always be new money games. Few will stick around in the long run. For the zero sum remainder, if your gain is another's loss, is the game even worth playing? Don't ever buy just to sell. Reframe expectations, it's OK not to participate in every ruffle of the waves.

#3: Herd behavior flows with the counter-culture crypto ethos, but the glorification of ape mentality has got to go. In outsourcing diligence to the crowd, you lose agency and the capacity for self-reflectivity, and delegate personal well-being to a house of cards.

#4: You can be a believer without leveraging every facet of your waking consciousness into the cause. If it's on your mind at all, it's too much already. Nothing is ever "only up", so why mortgage attention to expectancy?

II. The Present — Art Blocks

Only after deleting ape mentality can one double click into the movements that actually resonate. And in unpacking what makes certain projects special, one can begin to differentiate the communities that will be around for decades, not days.

The creative community that has grabbed 100% of my mindshare of late is Art Blocks (AB), the generative art launchpad created by Erick Calderon ("Snowfro"). Those who fall into this community don't just like it—they LOVE it, with an intensity hard to express in words. What it is about AB that makes everyone participating in the movement feel "alive"? For me, it's the magic of what happens when you mix natively digital media (generative art) with digital scarcity as a primitive, supported by the passion of a tightly knit artist-collector community, mixed with a bit of gacha style luck in the minting process, all propelled by a steady stream of creative inspiration.

Generative art has a long history, and Jason Bailey's piece Why Love Generative Art? is a fantastic starting point for appreciating why digital scarcity is so foundational to the expansion in the generative art movement. For those looking to dive deeper into the space, commonly cited references include Processing - Creative Coding and Computational Art, The Nature of Code and Generative Design.

I first learned of Art Blocks after reading Ricardo Stuven's piece on the importance of on-chain art. Foundationally, the idea of art not as the output of software but as the software itself—with the code embedded directly on the blockchain and certified by the artist through the minting process—struck a chord with me. Matt DesLauriers wrote a wonderful piece explaining this in more detail.

More broadly, the idea of "code as art" lends itself to all kinds of interesting second-order effects relating to interoperability and composability within the evolving metaverse. As Derek Schloss and Stephen Mckeon write in Punks, Squiggles and the Future of Generative Art:

Several other fantastic pieces have been written on AB, including Druid's Art Blocks 101 guide on how to mint AB pieces, Zeneca_33's comprehensive overview of the ecosystem and every one of the Jeff Davis artist interviews.

I myself have become a Top 5 Art Blocks collector, and spend more time than I care to admit in the ever entertaining #sales-chat channel (just today renamed to #block-party) of the Art Blocks Discord. What I care to drill into here is why I have become so obsessed with generative art (after never collecting art previously), and what the Art Blocks metagame reveals about how to build a lasting and meaningful community.

The best way to understand what makes the AB experience special is through a deep dive into some of the projects that have been released on it. Some of my personal favorites include: Fidenzas (Tyler Hobbs), Ringers (Dmitri Cherniak), Apparitions (Aaron Penne), Subscapes (Matt DesLauriers) and Chromie Squiggles (Snowfro).

Tyler Hobbs, in The Importance of Generative Art, writes: "Generative art is truly working with the essence of what shapes our new digital worlds." He continues:

I love how Tyler details the fine intricacies of creating generative art, the tension between predictable quality and unexpected variation:

In describing Fidenzas, Tyler explains:

My Fidenza Collection on Art Blocks

Dmitri Cherniak's Ringers are widely recognized as the Art Blocks release that propelled the platform into mainstream awareness. The theme: how many ways can you wrap string around a peg?

Ringers, the Complete Set, by Dmitri Cherniak

My Ringers Collection on Art Blocks

Aaron Penne wrote a fantastic piece detailing the intricacies behind Apparitions, "an exploration of the space between the algorithmic and organic."

My Apparitions Collection on Art Blocks

Matt DesLauriers wrote an exposition of the Subscapes traits that wonderfully illustrates the depth and quality that go into top-tier AB drops. It's no wonder that Subscapes has become one of the most sought-after AB collections out there.

My Subscapes Collection on Art Blocks

Snowfro and his Chromie Squiggle was Project 0 on Art Blocks. It is amazing to hear Erick talk about the origin story of Art Blocks and Chromie Squiggles with Josie, Kevin Rose, Ponyo, and many others. Suffice to say that Erick has inspired an entire generation of artists and collectors, and even a DAO dedicated to the collection of Squiggles.

My Chromie Squiggle Collection on Art Blocks

All told, I've collected dozens of artists on Art Blocks. Many of them are truly inspirational. Here is a small sampling of thoughts from some of the many other talented artists on the platform that particularly resonated with me:

Kjetil GolidAs a generative artist, I tend to look at my pieces as functional systems turning numbers into visuals. The goal of creating such a system is to achieve an unexpected, complex, emergent behaviour, striking a balance between ungraspable chaos and a clear structure. I had long thought that this sense of complexity and chaos could be achieved only through the sheer randomness of the input, but it has gradually become clear to me that it may very well emerge from simple, deterministic rules as well, like cellular automata, regular grammar etc. From this realization, my work has slowly shifted its focus from structuring and visualising large bodies of random numbers to creating complex systems that can emerge from potentially very few inputs.

Casey ReasI’ve worked in many different ways and with different ideas, but code is at the root of everything. Motion and change are the essence. I started coding in the late 1990s because I wanted to make drawings that I felt I couldn’t make any other way and I’ve been running with it ever since.

Joshua BagleyFun colors and funky shapes. I wanted to make something that was simple yet contained a lot of hidden complexity. I especially wanted to create static compositions that felt alive. And of course, seeing how much variety I could create while maintaining a core style.

ShvembldrA lot of generative art is very geometric because there are numbers and algorithms behind it, so I decided to make something bright and associated with generative art. I used a hexagonal grid, which using isometrics turns into blocks, each side of which is a small generative art. I tried to use smooth animations, so that this work placed for example on the wall (now that there are special displays for NFTs) was not something distracting, but on the contrary something to look at and calm down or meditate.

Stefano ContieroThere are some recurring themes in my art: identity, sense of belonging, past, the joy of living, Memento Mori... Frammenti is all about how our memories define us. Every fragment represents one memory. When combined, they define who we are.... If their union symbolizes our life, their explosion represents our death, as one cannot exist without the other. And even if we no longer exist in one shape, those memories will outlive us in all the people we have shared our lives with.

Jason TingI’ve always been fascinated with the phenomena found in the natural world, especially the aesthetics of fluid motion. I once saw a video of water droplets in zero gravity and remember being delighted by how playful the liquid blob looked as it floated around and morphed. I wanted to capture that playfulness in this project, as well as add personality through color and motion.

By buying into an Art Blocks release, you are participating in a community that has every right to exist decades from now, and will only strengthen over time. Liquidity is the lifeblood of any marketplace, and off-market pieces get scooped in seconds. As one case in point, I recently took 20 ETH of loans against my collection on NFTfi where offers were provided within minutes at reasonable APYs (2.5% per month). The blue chip perception of Art Blocks pieces has second-order effects, where liquidity begets additional liquidity and interoperability across the broader DeFi stack. Together, these effects compound, and will draw liquidity away from “isolated” NFTs without similar platform effects.

The Collective Hoorah After Every Art Blocks Secondary Sale in #block-party

The Collective Hoorah After Someone Completes an Amazingly Curated Set

It's no wonder that the floor prices of several of the foundational sets exceed 5 ETH ($10k at writing). My view is that these floors will increase over time, as early sets rotate into the hands of long-term collectors who are unlikely to break up complete sets. It's still early days, with only 5,936 wallets holding Art Blocks pieces as of July 1, 2021 according to cryptoslam.io.

To me, the most compelling indication of where we are heading is how many Art Blocks collectors have started creating fan art around their sets and integrating it into their identity, such as mixing a Fidenza background behind their Cryptopunk avatar. As Jade Raymond writes:

The future looks bright.

Art Blocks Historical Sales Volumes, source: cryptoslam.io

Top Art Blocks Projects by Volume (as of July 1, 2021)

III. The Future — Sustainable Communities

Imagine a world where, as Jesse Walden recently declared, "investing is culture and culture is investing”. Everyone can become a stakeholder, not just culturally but financially, in the causes that resonate with their interests and values. Global communities of like-minded individuals form overnight, where what you do defines who you are. Open markets and personal passions combine to form the beginnings of "squad wealth", woven together by the melody of good DAO vibes, and constrained only by the limits of collective imagination.

Yet, is any of this real? I'm a believer, but reality has some catching up to do. For most projects, “community” is not the glue of likeminded passion and potential energy, but short-term marketing used to attract new entrants into a zero-sum money game.

In experimenting with RNG, I had this vision to create a virtual "Soho House" of gamers, artists and creatives. Strangers bound together by a vision of common currency, with collective ownership of the upside. With engagement off the charts in those early days, I proudly asked respected game designer Raph Koster what he thought of my self-proclaimed wizardry. I was unprepared for the reality check that followed—in his words:

Those are words I've thought about many times since, particularly in the context of the many self-proclaimed "communities" that have sprung up around every new NFT and DeFi project. When the initial speculative frenzy dies down, there can only be so many of these projects with active, multi-year communities. Because minds are simple, attention is short, and there just isn't enough mental space for us to each have 72 digital avatars and two dozen yield farms, and continue to care about every one. This is one reason why I very rarely buy NFTs without "platform effects" like Art Blocks: there is no ongoing metagame that justifies a continued increase in value to the ecosystem over time.

Social tokens I think paint a different story. In a Stream of Social Token Consciousness, I dwelled on the formative conditions for creating long-term community games. From my vantage point, we are just at the beginnings of bringing a rubric for shared ownership to mainstream consumer applications of all kinds. As I wrote in Mario Gabriele's recent briefing on What to Watch in Crypto:

First and foremost though, the path to sustainability lies not in token economics, but creating a game that people want to play, fostering an inclusive community around that experience, and making every player feel a sense of wonder and humility at the opportunity to be a part of the creative explosion. And there is no better example of that today than Art Blocks. I have the ancients to thank in getting me to focus on the games I actually care about, and to shut out all the ones I don’t.

In recent conversations, I have been surprised by the polarity of the disconnect amongst individuals I respect in our collective evaluation of the market opportunity enabled by web3, as it pertains to gaming, art, and the creator economy. I would therefore like to distill my thoughts, to instigate a grounded discussion on the space, with three overarching objectives:

(i) to steer the conversation away from whether NFTs are a bubble;

(ii) to focus instead on why web3 matters for creatives; and

(iii) to identify potential areas worthy of further time and focus.

Perspective Shifts

My first observation: it is hard to have a grounded discussion on the space. The biggest mistake I see is a singular focus on price, to the exclusion of all the real reasons this wave matters. Most comparisons are to the 2017 ICO boom, like this tweet from Charlie Lee:

Apes Together Strong

The concern is understandable. For decades, retail has gotten the short end of the stick, suffering loss rates of over 90% on particularly aggressive financial structures like CFDs and binary options. Retail psychology is famously driven by herd mentality and FOMO. As David Perell has written:

When seasoned investors look at retail investing in anything, they see episodes like GameStop and think, “here we go again…”. Observation transforms into judgment, and “smart money” closes to further debate. Yet, I believe applying an investment lens to all sources of retail demand is a serious miscalculation. As Packy McCormick astutely observed:

When professional investors look at GameStop, they see a company trading at a price unjustified by its fundamentals. When retail investors do the same, they see the symbol of a social movement, part investment, part status symbol and part entertainment derived from “sticking it to the man”.

For financial assets like stocks and bonds that boil down to discounted cash flows (DCF), I do not personally subscribe to the “belief is everything” refrain. Fundamentals always matter, and gravity and reality always prevail, eventually. While herd behavior generates short term noise and excitement, I cannot see why retail should have any long-term sustainable edge against smart money. What is interesting about non-financial assets, though, is that they are a different beast entirely. Historically, this category has been dominated by art, real estate, commodities, and collectibles. In the space of just a few years, it has already become so much more.

My overarching thesis is that we are at the early stages of a multi-decade super-cycle of retail empowerment driven by the fact that “consumption, culture and community” are now tradeable assets. Consumption is no longer ephemeral, but persistent. No longer private, but communal. No longer limitless, but scarce. Consumption is, for the first time, collectable.

We know that consumption value exists by looking at existing spend in large consumer markets (including gaming, collectibles, film, music, etc.). For example, according to Sensor Tower in 2020, $22.75b was spent across mobile gaming genres that include persistent cosmetics. Financial ROI: -100%. So what happens when consumers get all that same engagement value, plus ownership, provenance, scarcity, status, and a financial return (or at least, anything less than a total loss)? The effects are not additive and linear, they are multiplicative and exponential. It should be no wonder to that NBA Top Shot has sold over $300m of digital collectibles, when top grossing gaming titles generate over $1b per year.

When I think about how to measure consumption value, I start by asking two questions: (1) What does the asset provide by way of patronage, status, access, exclusivity or utility within the community in which it is recognized? (2) Is that community likely to be around for the long term, such that “squad wealth” can be created from sustained engagement? From these questions, it is possible to form an investment view based on the likely trajectory of these trends over a sustained period.

This framework may be a bit too amorphous for traditional investors and collectors, who have cash flows, comparables, and heritage to form a valuation opinion on. When existing models no longer work, the default refrain is predictable: “bubble”. My view is more nuanced. I believe consumption value is the dark matter of the modern world: that it is difficult to measure does not mean that it does not exist. We may not have all the answers, but we had better keep searching. This cycle will not be about inventing new figments of “value” in our collective imagination. It will be about which of us take our blinders off and see what is already there, right in front of us, today.

And so, returning to Charlie Lee’s tweet, the analogy to 2017 obfuscates more than it illuminates. ICOs were primarily financial assets, means to some promised ends around future network utility. NFTs and digital collectibles are primarily non-financial assets, ends in and of themselves. Stripped to its core, the former is driven predominantly by extrinsic motivations (cash flows), and the latter predominantly by intrinsic motivations (consumption value). My own opinion is that there is plenty of TAM to expand into given the reflexivity of supply/demand for outstanding creative work, especially for top-tier artists and for collections with strong heritage and community. But if the prospect for quick gain disappears, people may lose money and creatives may miss out, but what’s left will be a core comprising so much more than just dashed hope and expectation. Here’s why.

Web3 will have a meaningful, lasting impact on creative culture.

Mason Nystrom writes, “Web3 is about rearchitecting the existing services and products of the Internet so that they benefit people rather than entities.” If what web3 has enabled is for consumption to become collectible, the implications for gaming, art, and the creator economy broadly are profound:

Cutting out the Middleman (McCormick)

o “The movement is really about doing one of the most capitalist things there is: cutting out the middleman. It means that instead of value accruing to the Aggregators, there can be a more direct connection between suppliers and consumers.”

o Creatives can sell their works to a global pool of buyers and collect royalties every time their works are resold.

Patronage+ (Walden)

o “NFTs are a better model because they combine the social and utilitarian benefits of patronage with the possibility of turning a profit or realizing compounding utility. On the web today, consumers rent access to most goods and services, including the creators they patronize. A key tenet of new Ownership Economy platforms is the incentive alignment that comes from having skin in the game. With regard to supporting creators, I've called this “Patronage+” where the “plus” is the possibility of earning value alongside the creators you support. This is a strong, under-explored incentive to become a patron in the first place—and I think it may drive more engaging and rewarding demand in markets for creative work.”

o “A shared understanding and a common gathering point for creatives and developers who want to creatively represent digital scarcity, for any use case now.”

A Better Form of Art (Belsky)

o Non-counterfeitable

o Provenance based in transaction records, not fables

o Transparent scarcity

o Portability and liquidity

o Meritocracy and opportunity

o Share of secondary sales

o New forms of multi-media mashups

o Metaverse-native formats

Self-Sovereign Foundations (Kicks)

o “A plausible path towards an ultimate long term open framework where everyone’s in control of their own presence, free of gatekeeping.” (Sweeney, quoting Kicks’s article)

o “It’s about attaching each user’s data and money directly to them (Self-Sovereign Identity), creating a public record that they own what they own (blockchain), and letting them take it with them, and profit from it, wherever they go on the web (Interoperability).” (McCormick)

Distributed Open Markets (L’Atelier)

o “Most of the marketplaces in the Virtual Economy are owned by a gaming publisher that sets the rules of the virtual world, oversees its economy and facilitates the creation of virtual assets…. As the ultimate owner of everything created on the platform, the publisher typically does not permit the external sale or transfer of those assets beyond the gaming environment.”

o “Distributed open markets are typically based on decentralised infrastructure and are not owned by any single entity. They allow the creation of unique virtual assets that only exist in a virtual space. These assets are created, bought, licensed, rented and sold in decentralised markets.”

Creator Cooperatives (Kesonpat)

o “It feels like we're entering the next evolutionary phase of online communities, where you and others are not just members of the same chat room talking about a shared interest, but are stakeholders of the community itself, in a system with baked-in incentives to reward you for the value you put in. The community is able to evolve a product alongside the creators.”

Biq Squad Energy (Hart, Shorin, Lotti)

o “Squads can extend themselves horizontally by inventing new aesthetics, organizational forms, and creative products that become the template for others. When squad vibes transmit they take on a life of their own. While the material value of these patterns may be limited, the significance of memeing a new bottom-up economic model into existence cannot be understated.”

Play to Earn (Callon-Butler)

o “Play to earn” offers new income streams for players (especially meaningful in emerging markets), around which decentralized guilds can form.

Social Tokens (Kim)

o Nearly all the "passion economy" startups are stuck in the mindset of, "how do we help creators monetize engagement", when they should be asking, "what if we reframed the creator-collective relationship entirely?" Social tokens are the foundational incentive layer for creators and curators to distribute value to their communities as they grow.

The upshot is this: if you are spending all your energy debating whether that latest trends are a bubble, that’s time not spent discussing what web3 has enabled. Don’t miss the forest for the trees, and remember how early we are in this cycle, as poignantly depicted in this graphic from Maple Leaf Capital:

Things I think I think

Investor interest in opportunities at the intersection of web3 and the creative space has exploded in recent months. I have never felt it more important to narrow time and focus on the teams (i) that are intent on “being different”, not just “being the best” or “beating the competition” and (ii) for which we have some credible edge given our experience and capabilities.

Below, I sketch out some of the themes that are top of mind, but by no means is this an exhaustive list. It’s rather an invitation for comment and debate, in the hope of opening up an interesting rabbit hole or two from all the creative minds operating in this space.

1. Whereas for the longest time the digital was secondary to the physical, the physical has now become secondary to the digital, as natively digital representations achieve critical mass of status, access and exchange.

2. Investors will seek curated access to top-tier NFTs, as the paradox of choice overwhelms. The best opportunities for NFT beta will be the leading “social tokens” (e.g., $WHALE, $B20), which embed a large affinity and engagement premium to “book value” of vault holdings.

3. It will become increasingly necessary for creatives to take a long-term view on community to conduct successful NFT sales. Those who embed clever collection games into their works will stand out, as the audience takes an active role in shaping the emergent metagame.

4. The non-fungible is quickly becoming fungible, as the financial stack around digital art and virtual goods matures: defi will drive solutions for fractional ownership (e.g., NFTX), broad-based indices, price discovery, best execution and lending.

5. Mainstream game developers are slowly coming around to the idea that blockchain is interesting, particularly for collection games. But actual adoption is likely to be modest (e.g., selling NFTs as redeemable in-game skins), and financial success likely limited.

6. The more interesting opportunity lies with “community owned games” – where enterprise value is not monopolized by equity holders of a studio but funneled entirely to holders of the community token. It will be very difficult for existing game studios to morph into community-owned ones – for the same reason that Epic can’t just dissolve and “convert” into v-bucks. Regulatory challenges abound (securities laws, KYC/AML).

7. Despite the challenges, a few blockchain games and virtual worlds are likely to be astoundingly successful, multi-billion dollar companies, and will attract an increasingly fervent player base who, once they’re in, never go back to playing traditional games. Blockchain gaming TAM will become large enough to support an ecosystem of venture-backable companies, even in the absence of “mainstream adoption”.

8. Equity will become increasingly disfavored relative to tokens, as the compounding benefits of community co-creation and incentivization increasingly outweigh the drawbacks of building a blockchain-based game.

9. Yet, traditional VC funds will be poorly equipped to participate in the next generation of community-owned games, as they require token investments and staking and liquidity mining to earn network rewards over time.

10. The single biggest risk in operating in this space is linear thinking and anchoring bias, leading to a persistent underestimation of the TAM acceleration happening across huge existing markets from global composability and turbocharged incentives.

Where does this leave me? With a particular interest in the following categories:

If you are a founder in this space, I would love to hear your story – please feel free to reach out at richard@galaxyinteractive.io, and ping me in the RNG Discord (https://discord.gg/rnglife), where you’ll get the opportunity to meet an amazing creative community operating on the frontiers of web3.