Roham Gharegozlou has been betting on the potential success of NFTs for years. This year, it happened.
Gharegozlou and the team at his startup, Dapper Labs, shipped the blockchain world’s first popular game, CryptoKitties, back in 2017. The startup then launched NBA Top Shot late last year, and it promptly caught fire and brought worldwide attention to the crypto collectibles space.
We caught up with the Dapper Labs CEO at TechCrunch Disrupt 2021 last week to discuss the challenges facing the crypto space, the future of Ethereum and how quickly NFTs blew up this year.
“I knew it would be fast, but NBA Top Shot went from 4,000 to 400,000 users in a matter of weeks,” Gharegozlou said.
Top Shot’s success has made Dapper Labs a venture darling — the company announced a $250 million funding round last week, reaching a reported $7.6 billion valuation. The massive valuation is not just a bet on the continued success of Top Shot, it’s also a nod to the potential of the platform that Dapper Labs is building for other consumer-minded blockchain developers. The startup has built its own blockchain, called Flow, sidestepping the popular Ethereum blockchain, which the vast majority of successful NFT platforms live on today. Dapper Labs is betting that won’t be the case for long.
“For the first year or year and a half of Dapper Labs, we spent about $30 million trying to build on Ethereum. We built Dapper Wallet — the user experience you see on Top Shot, we tried building it on top of Ethereum,” he says. “We realized there are multiple issues. There’s cost, there’s scale, there’s throughput, there’s all these things, but fundamentally, it’s all about user experience. The user experience that you build for when you’re designing a protocol and blockchain for financially sophisticated traders or very hardcore DeFi things, those aren’t the same trade-offs that you want when you’re building for consumer applications.”
Many in the Ethereum ecosystem are placing their hopes in so-called Layer 2 scaling solutions to handle some of the problems Gharegozlou mentioned. Gharegozlou believes that such scaling solutions still aren’t an answer and leave consumers shouldering most of the complexity in onboarding.
“Layer 2s reduce the gas fees, but they make the user experience much, much more challenging. You’re still going to have a hard time getting an average NBA fan to get a Layer 2 wallet, transfer Ethereum from one wallet into another or use stablecoins if that’s the way, and it just becomes a very tough proposition,” he says. “On Flow, you can see products … that are made for real fans, but they’re NFT-based in the back end, and the fan doesn’t even really need to know that when they start.”
Dapper Labs’ Flow blockchain powers a handful of third-party experiences and platforms in the NFT world, but, to date, none of the early projects are close to touching the success of Top Shot. For now, most of the dollars in the NFT space are directed to a few dozen projects on the Ethereum blockchain, tapping into the vast wealth of that ecosystem.
Due to the platform constraints of Ethereum, many such projects emphasize finite scarcity, whereas platforms like Top Shot have steadily increased the number of collectibles to meet demand from an expanding user base.
“Most of the older collectible economies and most of the projects you see on Ethereum keep things simple — like there’s 10,000 CryptoPunks and that’s just about it,” Gharegozlou says. “With Top Shot, we wanted to build a product that can go to a billion NBA fans, and a playbook that can scale to the 3 billion to 4 billion sports fans around the world.”
The startup has tried to maintain the scarcity of its rarest Legendary moments, while seeding the marketplace with more base moments to attract new users, but it has faced some challenges in keeping buyers inside the platform. Live views of active sales on Top Shot have been a blessing and curse, showcasing in concrete terms how quickly hype built for the platform back in early 2021 and also highlighting the steady slide in sales, transactions and unique buyers since then.
August 2021 was the biggest month ever for NFTs, with platform OpenSea generating a record $3.4 billion in transaction sales. But it was far from the biggest month for Top Shot, which generated $37 million in August, up substantially from July, but down nearly 85% from its February peak of $224 million in single-month sales.
With just a couple of days left in September, the platform is on track to record its lowest month of sales this year. The NBA regular season ended back in late July, so seasonality is definitely at play here, but with the 2021-2022 season kicking off in less than a month, the platform has a lot of ground to cover.
Gharegozlou says the startup is still in a “great position” and highlighted the recent release of WNBA moments as an area of growth for the company. In addition to how the Top Shot market recovers with a new NBA season starting soon, the company’s next big play — a partnership with avatar startup, Genies, to launch a crypto collectibles store for celebrity avatar accessory drops — might be the best indicator of how investor bets in Dapper Labs might pay off.
