About Innovation Capital
Inspired by the words of U.S. inventor Charles Kettering, “if you have always done it that way, it’s probably wrong,” Innovation Capital, presented by PatSnap, was born out of a desire to go where no other innovation podcast has gone. Just as the world’s top innovators have pushed the boundaries of what’s familiar and accepted, host Ray Chohan takes a completely fresh and unfiltered look at some of the biggest topics shaping innovation today. From the key drivers of innovation, to its role in the economic value chain and groundbreaking outputs, Innovation Capital leaves no question unanswered. When it comes to innovation, we are your capital; your mecca for daring discussion and the fuel for your growth and scalability. Welcome to Innovation Capital.
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In this episode of Innovation Capital
Mason Nystrom, Senior Research Analyst, Messari, speaks with PatSnap’s Founder (West) & VP New Ventures, Ray Chohan.
- Mason explains Web 3.0 is the disintermediation of middlemen across the entire internet stack.
- Mason explains what is an NFT and how it is used.
- We will all start to own more and more of our online assets.
- What is DeFi?
- Every asset that can be tokenized will be tokenized.
- Want to spark an impactful discussion around innovation within your organization? Download your copy of our FREE e-book, The connected innovation intelligence blueprint. In this report, we explore what connected innovation intelligence is and how the world’s disruptors are using it to grow, compete and win in a hyper-competitive world.
Senior Research Analyst, Messari
Mason Nystrom is a Senior Research Analyst at Messari and author of Unsyndicated, a newsletter focused on Bitcoin, Ethereum, DeFi, Web 3.0, and all things crypto.
Previously Mason worked for ConsenSys as a marketer focused on marketing strategy for ConsenSys and its portfolio companies. Prior to joining ConsenSys, he worked as a Business Analyst at Gatecoin, the first cryptocurrency exchange to list ether, Ethereum’s native cryptocurrency.
Subscribe to Mason's blog.
Connect with Mason Nystrom on LinkedIn
Founder West & VP New Ventures, PatSnap
Ray is Founder West & VP New Ventures and the founding member of PatSnap in Europe. He started the London operation from his living room in 2012, growing the team to 70+ by 2015. Prior to PatSnap, Ray was BD Director at Datamonitor where he was an award-winning revenue generator across various verticals and product lines over an 8-year period. This journey gave Ray the unique insight and inspiration to start the PatSnap ‘go to market’ in London. Ray now leads corporate development where he focuses his time on creating new partnerships and go-to-market strategies.
Ray Chohan: Mason, welcome to Innovation Capital, really excited to have you onboard today. Firstly, I want to say congrats. The team and I have loved the content you’re producing within the wonderful world of crypto and blockchain and DFI and web 3.0. So I’d love to kick off with just hearing about your professional story because my roots also lie in market research and it seems like you’ve had a really fast rise in your career. So I’d love to kick off with a little bit about your background and how you ended up in the world of research and then segueing into doing research analysis within the crypto and digital assets market, Mason.
Mason Nystrom: Of course. First of all, thank you, Ray. Happy to come on the pod and appreciate that you’ve been following some of my research. As far as my background goes, my foray into crypto started when I was doing my MBA in Hong Kong and was really just looking to work and so joined a local cryptocurrency exchange out there just really as a business intern, did everything from marketing to help with operations and customer support, and just loved the crypto ecosystem. This was during the 2017 run-up and so it was just incredibly invigorating and then I decided I wanted to stay, came back to the States, and joined Consensus, which is a global blockchain conglomerate that develops predominantly on Ethereum. As a marketer where I helped out with a strategy for some consensus, many portfolio companies, as well as Consensus itself. And then from there wanting to get deeper into the research side, and so I ended up joining Masari, which is a data analytics and research provider. You can think of us like Bloomberg for crypto. And so I joined as a research analyst where I specifically cover web 3, which includes a bunch of fascinating trends, like NFT, social tokens, and the metaverse and stuff like that. So, yes, that’s a little bit about my background.
Ray: And Web 3.0 is being plastered across every social media platform at the moment. It’s a bit of a buzzword. Mason, when I speak to folks who tried defining what web 3.0 is, they haven’t got a bloody clue, it’s a different answer. So we’d love to just set the stage first with web 3.0 and then we can dig into NFTs, DeFi tokenization of everything because I think there’s a lot of little sub-sectors, but it seems like the underlying platform is this huge shift towards web 3.0. So it’d be great to understand the history and what is web 3.0 and what will they enable, Mason?
Mason: Absolutely. So web three is this broad trend in crypto, which some people are terming the next era of the internet. I just view it as the decentralization or disintermediation of middlemen across the entire internet stack. And so what I mean by that is everything from your internet service provider, all the way up the value chain to the storage layers of the internet, which is like your Amazons, your Googles, and your Microsoft, and then keep going up until you hit that application layer. Even including things like Spotify and some of those more consumer-friendly applications that users might use on a day-to-day basis. It’s incredibly broad which is one of the reasons that I think it gets so many buzzwords on Twitter and social media and stuff like that.
Ray: And it seems like you mentioned removing the middleman. In a way, is it arbitraging value back to the original user? So the original north star of what the internet was supposed to be and if so, are there any great examples of early-stage use cases which are executing right now and really giving direct value to the direct user and the content creator? Is there anything specific that is a trailblazer in the market at the moment?
Mason: Yes, absolutely. I would say that we’re still predominantly in the infrastructure phase of building out the necessary components that will enable greater applications to build on top of them. And so what I mean by that is currently, if you were to take something like Amazon. Amazon does a lot of stuff. They have a host of products and services offered through AWS, everything from video transcoding, for uploading files to just storing information, whether that’s providing computation power through a bunch of their data centers. All those individual tasks, Amazon has aggregated and they can provide you a good cost because they have that vertical integration. But so when we take those models, whether it’s like storage or computation and apply it with a web 3 setting, a lot of times, it’s just saying, hey, there are all these untapped resources, whether it’s from consumer machines, whether it’s from other types of data centers or devices that we can connect with to build a new type of network. And at the end of the day, that just leads to direct price comparison. So you can get cheaper storage or cheaper computation on one of these web 3 protocols as compared to Amazon. At the end of the day, when you disintermediate or remove these middlemen, which they have to take their fee for, you get a better product for the average consumer, whether that’s a developer or an end-user.
Ray: So it seems like we’re at the early stage of building out the plumbing and infrastructure of web 3.0.
Ray: Where do you think we’re going to be Mason by 2025 in your professional opinion?
Mason: That’s a great question. I think that right now we’re at this tipping moment or this like shelling point where I would say for the past four or five years, a lot of these protocols have been building and they’ve just started to get to the point where they can support greater consumer demand and integrate into, I would say like a way that can be used for your average consumer or developer. I think that we’re going to start to see a lot more growth over the coming years, and it’s going to be a breeding ground for, not only new types of companies to be built, but new types of industries to form around that based on things that maybe weren’t possible before.
Ray: Yes, it’s interesting. Obviously, you’re looking at some of those foundational use cases and I think a lot of those are being talked about right now, but some of these secondary and tertiary companies which will be born out of web 3.0, I mean, it’s mind-boggling where we can go with it, so this is really forward-looking. What are some of the rabbit holes, which catch your attention right now as hot secondary or tertiary markets where it’s going to make a huge impact on customer value or potentially change or transform industries?
Mason: Yes. I mean, I think if you take a broad lens and say, what are the benefits of putting all these businesses as blockchain networks and it comes from the fact that you make them permissionless, you make them programmable. And at the end of the day, you also make them more secure. And so having those three kinds of core components allows you to build applications on top of applications. Everything today runs on TCP, which is just like a base internet protocol. Blockchains provide that same concept, but now you can build applications where people can capture value. And so if you’re talking about something like a theory which is just a blockchain that you can program dozens of different types of applications on top of, well, then there can be applications on top of those applications and so forth until you get this wide array of interoperating just pieces of software that really benefits businesses, consumers and drastically shifts how everything works.
Ray: In terms of particular markets, what industries do you think are going to get touched the most first, initially in terms of that phase one of commercialization and rollout, which industry sectors do you think will experience the initial impact and game-changing evolution?
Mason: To date, we’ve seen a large financial ecosystem develop on top of Ethereum. That’s everything from providing lending protocols so that people can get loans without an identity, or even go to a bank, new types of financial contracts that are porting everything that we already do in the existing financial world but putting it onto a blockchain network and getting the benefits that come with being on a blockchain like Ethereum. That’s been the first, I would say mainstream or not mainstream, but that the first use case, the first like a mainstream use case that we’re seeing is on the non-fungible token side with NFTs, because that’s such just a, a more consumer-facing part of like that trend of tokenizing every asset.
Ray: Okay. That’s a perfect segue into this again. I mean, it’s getting butchered online through memes. Again, when you speak to Joe public, you go to the pub, you go to a bar, you go to a restaurant. If I were to ask my sister who’s in tech but doesn’t understand what an NFT is and the impact it will make. So starting from ground zero, what’s an NFT?
Mason: An NFT stands for a non-fungible token, and I think one of the easiest explanations I can give is that it is a digital file standard for a blockchain network. So if you’re going to send your sister an image of, you know, something you guys did on a family trip or say, you want to send her some document that is important for her to sign. Well, what you’re sending is a PNG or a PDF. And so the internet has these file standards that we use to transfer information. And in that same capacity blockchains have file standards that are used to transfer information and value. And an NFT is just one way to transfer that type of information that is unique and that can come with the additional benefits of being on a blockchain network.
Ray: So this is interesting because the world that you are in, PatSnap is the world of IP. Our platform is used by innovators all across the world for commercializing their IP assets, generating new opportunities, discovering new markets, and optimizing the value from their intangible assets. And as we sit today, the S&P 500, 90% of their market cap is intangible assets. It’s a mixture of software, domain knowledge, tacit knowledge patterns, of course, software capability, machine learning, brands. There you go, right. It’s all intangible. If you look at a big part of NFTs, it seems like the fundamental pinning is IP and a lot more, it’s a much more liquid way of transferring intangible value. So do you see it having a big impact in the patent world or the research and development world where potentially a trade secret, an EV company is then baked into an AFT and that value is exchanged and transferred and monetized in a new way if that makes sense? Do you see having a, or is it going to have a quick impact in the world of classic IP?
Mason: I mean, I think in the broadest sense, NFTs are going to tackle dozens of types of asset classes because they can be anything from a gaming asset. They can be anything to a carbon credit or something like IP, whether that’s a patent or trademark or what have you. And so I think that the market for issuing IPs as NFTs is going to be huge. I haven’t seen too many companies to date tackle it yet, mostly just because I think we’ve largely not standardized around how that should be done. The most basic capability of some NFTs today is providing royalties. And so like that naturally fits into what you want from an IP because someone goes and licenses an IP. If they do that as an NFT, we can easily see that someone has access to that specific patent or that licensing and royalties can be distributed in real-time which is pretty powerful when you consider the existing IP system in regards to music or whatever intellectual property you are using.
Ray: I mean, it’s interesting. We were just spitballing the other week because we’re out of lockdown here in the UK, so we can finally meet each other face-to-face. And we were talking about how this could potentially really impact the world of research and development. So at the moment, if you’re a great scientist at DeepMind or an electric vehicle company like Tesla, you’re working in R&D, you come up with a great concept, you typically file a patent to protect it, or it’s an internal trade secret. And that IP is managed in a very centralized, quite slow fashion to be fair with you. Do you see a future state where you’re going to have R&D professionals, which are democratized all across the world, working from home as contractors? They just participate in a central project, which has been posted by say Teslar or Spotify, with Disney. And when they participate in some value within that project, that value is captured within an NFT and that providence always matches back to the originator. So if that idea becomes a product, then becomes sales, that value can always in some way, accrue back to the original researcher who came up with part of that technology. Are we potentially moving into that world?
Mason: Absolutely. I think to hammer that point, there are a bunch of IPs, whether it’s developed by university companies that go unused. And there are a few marketplaces where you can go search for that intellectual property, say it’s like whatever, a new type of way to make a battery. But as the university says, hey, we have this IP, but we don’t have a commercial use for it. We’re just going to sell it. And a lot of that value just sits unused because while it’s hard to license, it’s hard to decide the terms. And so when you standardize IP creation in the form of NFT, you can build all these different models where, okay, we’re just going to issue this as an NFT. 1%, we’ll always come back to the university. Whoever takes it next, we’ll be able to retain all commercial rights to it. And we’ve only just started to see these experimentations and how to codify IP as tokens. And so I think there’s going to be a lot of rapid experimentation in the coming five years. And once the standard is figured out and someone’s like, hey, this is how we’re going to do all trademarks, or this is how we’re going to do all music rights, that’s when it’s really going to take off.
Ray: This is interesting because conceptually what we just discussed right now, it sounds like a complete no-brainer because we’ve got the [16:37 inaudible], but it’s interesting. Like there are two very biased guys on the call today because we’re in love with this world and you’re deeply passionate about it. I’m definitely tracking it because it dovetails into a lot of the customers we serve here at PatSnap and the future in a lot of the markets we operate in, but it seems like if you were just to go to your local bar or family gathering or catch up with friends, it seems like people still don’t get it. And you know, I notice this Mason, when you watch certain people on YouTube. So for example, Pomp is a great guy, right? Anthony Pompliano. I watch his stuff. I love his stuff. I mean, he’s —
Mason: He is one of the, I would say, seminal voices, encrypted every day.
Ray: Yes, he’s an absolute beast. He’s a savage. Then you’ve got Raoul Pal amazing at real vision. I’m a real vision. I love what Raoul and the team are doing there, but it seems when I consume this content, if you look at the views or the number of people dialing in Mason, the numbers are not big. Sometimes it’s like 3K, maybe a thousand people. Sometimes, obviously, you had Elon and Jack Dorsey the other day and Cathie Wood, all three amazing minds. They topped out 404,000, I think on YouTube. And that was good. But for the other folks who are brilliant minds and producing brilliant content like you guys are at Masari and your work, the volume is still low. So it makes me think, oh, we like this for the niche community who think we’re actually big and we’re still really, really early. Does that make sense?
Mason: Yes, it’s definitely a niche community. I mean, I don’t know many people who get excited about talking about IP and tokenizing it. I would say it’s definitely relatively early and as far as like, Bitcoin is obviously the leading dog in the race in terms of mindshare, whether it’s from the average consumer, or if you’re looking at businesses that are now starting to put Bitcoin on their balance sheet. And that’s just a necessary natural first, I would say, like, if you call it a hurdle that people have to climb or just reframing in terms of value that people have to get through. Once that hurdle is climbed, then it really opens up and I think we’re rapidly getting there and people are questioning the value of Bitcoin. I think the fact that that battle is won, is just going to bring a lot more people naturally into crypto, especially now as we get to these different ecosystems that are popping up, whether that’s decentralized finance, whether that’s NFTs or the metaverse. And so the fact that you now have all these niches, I think is slowly going to bring more people in, and that is going to just massively expand the total addressable market.
Ray: Yes, and I’m seeing those numbers go up because it’s interesting, the actual views and people joining a session. Sometimes it’s a nice proxy to where we are in the hype cycle. So I get it to maybe the world of software as a service or cloud software that 8, 12 years ago was considered, oh, on-premise to cloud, yes, cloud, maybe, but look where we are with the cloud right now in 2021, right. It’s a dominant force, that hurdle of other industries really getting involved and participating. You get this exponential convergence, which we are seeing in many markets, especially in the area of life sciences and material sciences, but that convergence phase where you get other industries diving into the world of DeFi, web 3.0, the underlying technologies, where do you think we are in that cycle in terms of maturity and, and that Venn diagram collaboration?
Mason: Yes, I mean, crypto is very cyclical in nature. So like Bitcoin’s obviously the first, the leading cycle. And then you tend to think, or at least I tend to think that if you have Bitcoin, say it’s past its early adoption phase. Wherever it is, you have another cycle behind that is decentralized finance and then NFTs are another cycle behind that. And then maybe something like social tokens with a better verse or another cycle behind that just in that early adoption phase. And so we’re still seeing growth. DeFi is rapidly evolving. The total value locked in these protocols continues to grow. In regards to NFTs, I use OpenSea, which is the largest NFT marketplace as a proxy. They just had their best month in July and July is not even over, so there’s still continued growth. And it’s just a matter of how fast that growth comes. And where does it come from?
Ray: Thanks for the overview on NFTs. I think that was clear. Now another fast-moving segment is DeFi, which is basically that it seems like it’s going to hugely disrupt the banking world and traditional finance. What is DeFi Mason? Because again, I see so many explanations and sometimes that can get confusing for many folks. So in its first principles, what is DeFi?
Mason: Yes. At the first principles, it’s taking the core aspects of finance, whether that’s lending, whether that’s sending value, speculation and putting them onto blockchain networks and you get those same benefits that we talked about with web 3.0 in the sense of, well, you’re disintermediating the middlemen. When you remove them, you can provide better terms, you’re creating a more transparent system. For example, stable coins are probably the killer app of decentralized finance right now. What you can do fascinatingly with stable coins is you can audit the entire money supply of say a USBC, by looking at one wallet address. That is unheard of in terms of the traditional financial system. You can see the leverage that’s in the system, how many people are taking loans, the collateral ratios, all this information because it’s built on blockchain networks is readily available, which gets rid of the dark markets that we see in the legacy financial system. And so it’s so powerful when you think about all those fundamental things that it can disrupt
Ray: Our space seems to move so quickly. If you look at DeFi pulse, the value locked in compared to say even like 18 months ago, it’s off the charts. Why do you think that’s moved so quickly?
Mason: Yes, that’s a great question. In the past year Compound, which is one of the leading money market protocols where you can deposit your collateral and save interest on it, or you can take a loan as long as you over collateralize the loan, launched a token last February, I want to say. And it acted as this catalyst moment where you could jumpstart your ecosystem because you could use your token to incentivize people to deposit capital. And so every DeFi protocol we’ve seen to date has used this liquidity mining in some form or another, which has just been rocket fuel for growing the amount of capital that has come into the ecosystem. And then you combine that with the increasing desire for investors to find yields outside of equities and crypto has become a breeding ground for that as well.
Ray: That’s brilliant. We’ve got some great context in the world of NFTs and DeFi. One space, which is crazy. I’ve ordered the Oculus Quest 2. It was recommended by a fellow PatSnapper here. I want to persuade the rest of my family like we are entering this world. So what my son’s like three years old. And I always say to my wife, honey, the way we grew up, our son’s not growing up that way. If you watch films like Ready Player One, which I absolutely loved. I do see a world like that. It’s quite sad in a way but probably has many benefits as well. In terms of the metaverse that just seems like it’s just crazy when you try to explain it to folks, but in reality, beyond the hype and all the Hollywood hype, when you watch films like Ready Player One. Firstly, what is the metaverse and in terms of its cycle, where are we and where do you see it by say, within the next 8, 9 years?
Mason: Yes, that’s a great question. And the metaverse I would say because it is so nascent, so young, it doesn’t have a great definition, but I term it as like an aggregation of all the digital space that we have. So if you include VR, if you include just being on your desktop, if you include AR like it’s this combination of this shared digital space that we’re increasingly going to work in, live in, and spend a lot of time and other good aspects of it that I’ve seen here that it’s going to be synchronous, meaning that it is all going to be happening at the same time, rather than a lot of the worlds we live in, whether it’s Twitter or Facebook, like those are happening asynchronously. And so this concept that everything is going to be happening at the same time is another big part of it.And then I like to think of the importance. The crux of the metaverse is this concept of digital ownership, where you’re going to own a lot more of your online presence whether that’s in the form of assets or social capital or whatever it is. And so that’s how I view it at a glance. As far as the stage, I think we’re in the very early stages, there’s still a lot of infrastructure that needs to be built out for the metaverse. One of the core concepts is that it’s going to inter-operate so that you can go from one ecosystem or one world to the next, and we’re still not at that point. It’s a really exciting space that I think is going to see tremendous growth over the next decade.
Ray: This space is mind-boggling. I think someone put it like their switch cap, I can’t recall who, but we talk about flat to slow GDP growth, right, across various nations in certain parts of the world. Where potentially are you looking at, if the metaverse fulfills its promises, a whole new universe of GDP, which governments are not even ready for because A, they don’t understand what the metaverse is. How do you track that and follow it and appropriately tax it? It seems like you’re only just opening up this whole explosion of economic growth that I think many organizations are not even thinking about or even factoring in, in terms of raw GDP growth in certain markets.
Mason: Yes, I know. I wholeheartedly agree with you.
Ray: Yes. Sorry, go for it, Mason.
Mason: I’ll just say, I think like adding on to that point. I think where that economic growth is going to come from is this shift in how we perceive value. And so like you noted how like your children are not going to grow up the same way that we did. Like my cousin, who’s maybe a decade younger isn’t growing up the same way that I did. And he spends a lot of time in Fortnite and he looks at these digital skins in Fortnite, which are essentially just digital fashion. And he sees that as incredibly valuable, it’s a way to express himself. And it’s something that he perceives as having value just as I perceive Bitcoin as being a store of value. And so that shift in value is going to create so many opportunities that I think is going to be really hard to predict.
Ray: This is crazy. You’re seeing it in sports right now. I think there’s an organization called Chilies. I don’t know if that name rings a bell as a product, right? And they’ve got all the major sports clubs. I’m a big soccer fan, so English Premier League and obviously the European Champions League, which I follow here in the UK, but I know the equivalents happening with the NBA, the NHL. I was talking to someone who leads a leading cricket academy. Cricket is a UK-based sport, Mason.
Mason: I can’t say I watch too much cricket.
Ray: It’s huge in Europe. When I mentioned cricket, if you’re not from North America, you’re like, what?
Ray: We know baseball.
Mason: Cricket is probably better than baseball. Baseball is not a sport. And I know someone operating one of these fast-moving leagues, and you’re saying I’m getting approached by so many folks around tokens and community tokens. And he goes, I just don’t get it. We are a similar age, but it’s to your point, I think the culture in a way is becoming an asset class. Again, when I speak to my nieces and nephews who are 12, 13, 14, their perception of value is so different from my generation or even a generation behind me. So I just think a lot of organizations don’t even really understand the underlining value principles, a lot of this technology. My question is like on that education curve, do you see people getting their arms around this new world of perceiving value differently, or do you think in large organizations, people with big balance sheets are missing a trick?
Mason: I think large organizations are always skeptical. And they’re hesitant to build their systems on technology that they’re unfamiliar with, but we’ve slowly started to see some organizations dip their toes into various aspects of crypto. For example, Sorare, which is fantasy soccer, football card game where you can purchase individual cards that have different rarities and then you can compete for fantasy prizes. They have their own league that people can compete in and Ubisoft is now partnering with them to develop their own league using their cards. I think that there are going to be all these types of partnerships that existing brands can use to leverage their brands to make more money. And that’s what you’ve seen with Chili’s you see all of these different sports clubs, which are worth hundreds of millions of dollars, and they’re saying, hey, like, if this is a better way to increase fan engagement, to connect with our fans more, that’s going to be more valuable for us. That’s going to create more value for our brand. And if we get a cut of whatever this revenue is, then that’s a monetization platform that is going to be incredibly powerful.
Ray: Have you got any specific examples of clubs or franchises who are doing this well and some of the new, additional pieces of value they have been able to offer their followers, their community, their fans?
Mason: Yes, I mean, Chilis broadly has social tokens, which are essential, they call them fan tokens. And if you own a certain percentage of them, then you can receive special perks, whether that’s like getting to meet players or getting to go to specific games. Socios today, a cool pilot where there was not an intramural league, but just a non-competition league. I forget the term, and so they let the fans vote on which position the players are going to play from their respective teams based on if you had fan tokens. And it was fascinating because that’s such a unique experience that a fan can be part of that no one would have thought about even five years ago. And this experimentation is happening across lots of different clubs, across various sports. And so it’s just starting. And I think it’s going to open up a lot of value for especially the largest brands, but also some of the smaller markets too.
Ray: That’s crazy, enabling your community and fans to vote on where certain athletes play in soccer. Is it right back left-back right-wing? That’s a revolutionary way to get your community to participate.
Mason: Yes In that exhibition match, the team that was fan-voted in terms of positions beat the one that wasn’t. So it’s going to be interesting to see if we can get some wisdom from the crowd to play out. Maybe the fans know as much as the coaching staff.
Ray: Holy shit, you’re disintermediating the actual manager.
Mason: Potentially, I think we’re a long way from that, but there’s going to be cool experiments like that that play out.
Ray: I could imagine a future league where X number of clubs are a classic model where the coach makes the final call and then you’ve got a few clubs, the fans run it, and let’s see who wins the league. That’s crazy.
This isn’t a new concept either, but it’s just so much more powerful because you have blockchain networks that make it so much easier. The Green Bay Packers, which is an American football team, have a percentage of fan ownership, equity ownership in the sports club. And so like that’s happened for decades. But now we’re going to get to this point where it’s going to be so much easier for any team to do something like that and offer better experiences for the fans. And potentially the players we’ll see how they incorporate them into it as well.
Ray: Well, this we can talk about for hours. The wacky insane world of the metaverse. Another space, this is the final pillar, which I hope you agree. This is one of the other core pillars. The tokenization of everything. You’re now seeing unique ways to tokenize and democratize the purchase of say, commercial real estate or other asset classes, which regular people can’t participate in because it’s only reserved for say high net worth individuals or people who are meet the criteria in the US as an authorized investor. Firstly, what is tokenization, and what are some of those innovative use cases that you’re seeing right now within the marketplace, within the tokenization?
Mason: I mean creating a token on a blockchain is just like back to the file format. It’s just a way to transfer value and information on a blockchain like Ethereum. And so there are tokens for you know, all types of assets that are native to blockchains, like ether, which is a theorem native token stable coins are, you know, another token. And then you have the more unique tokens, some of which we’ve already discussed, like trading cards and IP, and every asset that can be tokenized is going to be tokenized. That is what we’ve been seeing across all financial assets. And we’re seeing even the existing financial assets, whether they’re like stocks that are getting tokenized versions so that people who maybe don’t have access to the New York stock exchange or certain markets can now get access. That’s powerful because now you’re just globalizing all these types of different assets, which opens up the potential for investment. But also just to give access to people who might not have had it. One of the things I hate the most in the US is what you mentioned before the US accredited investor laws, where you have to make a certain amount of money in order to invest in startups or these asset classes.
Ray: Which is crazy. And it just drives me mad. It’s so archaic.
Mason: Totally, and it’s like, the government says, hey, like gambling is okay, but you know, the startup thing, I don’t know about it and it’s maddening because you’re, you’re locking out so much capital for companies that they could get access to. But you’re also harming the average consumer who should be able to invest their money how they see fit because that’s just going to yield better results.
Ray: So in terms of early organizations and companies who are trailblazers within the world of tokenization of assets, are there any particular trailblazers, which we should keep an eye on?
Mason: That’s a good one. I think it just depends on what context you look at tokenization from. So I would say generally there’s a spectrum of tokenization in the most regulatory friendly way possible versus tokenization in let’s say like a regulatory gray environment. And so TokenSoft is one company that has done well with a security token offering. So taking traditional securities and issuing them as tokens on Ethereum or other blockchains. And then we have other companies or exchanges that operate in more gray markets like FTX, which has created a list of tokens for dozens of equities and new types of financial products as well. And everything in between. Most NFT marketplaces let you tokenize whatever type of content you want. And so really this tokenization is such a commodity layer when we talk about blockchains and cryptocurrency that you can do it from almost anywhere.
Ray: Mason, thank you for that overview. It looks like we’ve covered some core pillars there, which will be front of mind for our audience. Now to more of a broader area. One mega space that we operate in here at PatSnap is enabling our customers Mason to track exponential convergence across various markets. So we have so many customers who might be operating in sensor technology, but there are opportunities within other sub-sectors, which enable their sub-sector. For example, let’s look at what Virgin Galactic have done two weeks ago. You look at that project, which was pretty much 18 years. A lot of that was enabled via exponential acceleration across several different disciplines. Material sciences, AI robotics, and then all of those areas converging to enable potential space exploration at a sub-orbital level, right? And that’s just one example, and I’ll say blue origin than something similar. Do you see similar convergence effects happening where the world of blockchain decentralized ledger technology, some of the spaces that we’ve touched upon DeFi tokenization, and some of those other big areas converging into other markets? And if so, is any movement happening around that right now, and what does that future state look like as some of those early opportunities?
Mason: Oh, most definitely. I mean, at the end of the day blockchains because they’re open source in nature have been able to innovate at such a rapid rate because everyone is working on, you know, either the same problem or building out infrastructure that benefits everyone else. And so you just have this compounding effect of innovation, which is incredibly powerful, especially as we talk about it in a longer timeframe. As far as how and what other markets blockchains are being for. I mean, there are pilots in almost any industry that you name, whether it’s a supply chain, whether it’s trade finance, whether you’re looking into music or more infrastructure components of what any company might do, whether that’s like databases or cloud software. So, I mean, every industry is getting touched in some form or another in the long term.
Ray: Is there anything pure obviously where they can’t music they’re the more consumer applications, anything exciting in traditional heavy industry like manufacturing or say manufacturing 4.0? Is there anything on that side of the market, which, which grabs your eye.
Mason: That’s not a sector I covered too much, but I would say that, at the end of the day, a blockchain is an automation tool. It lets you streamline document processing or managing a list of any like digital assets, whatever that is, whether that’s something that is native or something that is like an external data source that your company doesn’t create on its own. I think there will be use cases, but that’s not a sector that’s at the forefront of my perspective.
Ray: Thanks. And now more to valuation. This world, Lord knows how the actual valuation model is. It doesn’t make much sense to be fair with you, Mason. I know you guys are like the Bloomberg of this space. Thank God, you guys are here because a lot of what you guys are doing is brilliant. You’re laying the plumbing to enable professional investors semi-professional investors to get their arms around some of the valuations of these protocols because all of them are, I mean, they pre-revenue, I think you guys published something where you’re finally, thank God someone’s doing it. You’re tracking the actual revenue for somebody else. It slipped my mind, you guys have launched a sub-portal, which tracks that, at Messari.
Mason: We have some data that shows the revenues of protocols. We try and map out also the fully diluted supplies of all these protocols because I’d say the biggest misconception with enthusiastic investors or semi-professionals is that the circulating market cap that you see is how much the valuation is when in reality, it’s the fully diluted market cap that you need to look at because that is the valuation that some company has to grow into. And so without a doubt, some of these protocols are overvalued in the present time. Of course, if some of them end up doing well, then they’ll be undervalued in today’s time frame. But for the most part, valuation is really nuanced and difficult.
Ray: What I mean, honestly, look at the classic world of value investing, whether you use the classic miscounted cash flows. Now everyone’s talking about valuation and Metcalef’s Law and network effects, but that still sounds quite, I get it, but it’s still fluffy. Like what framework has got real substance behind it? Is it a mixture of Metcalfe’s law and a couple of other frameworks because at the moment it’s super confusing?
Mason: Yes. I mean, people are trying to find the metrics that matter most. So some people do use similar price to sales ratios for the protocols that do have revenue. Others are looking at usage numbers like a monitor of growth to help factor in valuation. But I would say for the most part that there’s no seminal metric that can be used to value most crypto assets because, at the end of the day, some of them are competing for different things. If you look at it like Bitcoin, it’s competing to be non-sovereign money versus an individual DeFi protocol just competing on the lending side. And those two things can’t be compared apples to apples or apples to oranges, they’re drastically different valuations for both of those protocols.
Ray: Just wrapping up in terms of the macro view, where do you think we are by 2026 across some of these core pillars, like DeFi, NFTs, web 3.0, do you think by 2025, 2026, we’ll wrap that curve where we’re seeing mass adoption and it’s eating into all the industries that we’ve touched upon today. What’s your prediction?
Mason: I would say that across DeFi there will be some major institutions within the next five years that are allocating capital to these protocols, whether that’s Compound or MakerDeo or something new that pops up. I think that every consumer-facing brand will be looking at NFTs or will be experimenting or have experimented in some capacity in order to drive and increase their monetization. And I think the web 3-sided is the hardest thing to predict because, there’s so much happening, but I think the infrastructure will be managing a significant capacity of whether it’s data storage or computation from some of the existing players in the market today.
Ray: We’ve talked about the core pillars, the areas of DeFi, tokenization, and some of those other areas. But is there anything that has caught your imagination, an area which no one’s talking about or hasn’t received much hype and you think is going to be huge and can drive a lot of value? Are there any emergent spaces that have grabbed your imagination and you think will be big?
Mason: That’s a good question. To be honest, I think the answer to that, is it something that nobody’s thought of yet, or that I’m unaware of and that hasn’t surfaced? I think that one of the potentially easier things is that there will be aspects of existing sectors that get bigger than anyone ever thought. And so I think that’s something that I think about more so.
Ray: Are you guys doing anything there at Messari to look at those emerging left-field markets and seeing how they potentially could converge into the core markets and try to build out a predictive model. Is that something you guys are exploring because that would be an awesome part of your capability if you guys can build some form of weak signal detector to look down different rabbit holes? I think that would be stunning if you guys can shape something like that.
Mason: Yes. To be honest, I think that we’re predominantly at Messari, working on building out this infrastructure for the blockchain networks of the future, rather than looking at the integration of existing institutions into crypto, because we believe that society is going to run on these permissionless blockchains in the future. And so we think that the value there is going to be much greater than bridging existing institutions into crypto.
Ray: Okay, great. Well, Mason, a bit of a final wrap-up now, a bit of a fun freestyle round. So extra-terrestrial life believer or non-believer and why?
Mason: I’m totally a believer. I don’t see how on a statistical basis we could be the only intelligent life in the galaxy.
Ray: Okay. And considering the space that you’re in, apart from the great content that you publish, any books you could recommend to our audience in terms of this space or adjacent spaces for them to get their arms around this new world, we’ll hopefully be living in?
Mason: Yes. One of my favorite authors is Morgan Housel who’s a venture capitalist at Collaborative Fund. He writes a weekly blog on their website and he emailed a book last year called the psychology money. And it’s a great book, really easy to read, and just takes you through different stories about how individuals perceive money differently and how they interact with it. And so definitely a great read for anyone who invests as an enthusiast or professional.
Ray: Okay. Thank you. I can’t help myself, a bit of a direct question and probably a question you probably get all the time. Obviously, the price action has been crazy this year with BTC and Ethereum. Where do you think we are going to be with say Bitcoin and Ethereum by Christmas?
Mason: By Christmas? Well, first of all, I would say not financial advice, but I am a long-term buyer of Bitcoin and Ethereum. I’m incredibly bullish on both those. And I think the best strategy is to continue to dollar cost the average every week and I don’t think you’ll be upset by Christmas or any date after that.
Ray: Yes. It seems like a no-brainer in terms of asset allocation in terms of those two fast-moving horses, for sure.
Mason: Yes. And really quick, asset allocation is like one of the most important parts of any portfolio. It’s not timing and it’s just, what asset are you in? And so definitely something to think about.
Ray: Sorry, we’ll wrap this into the session as well, but I’ve got something on my mind, which again is driving me nuts. If you look at the world of academia. Looking at all the curriculum across all the major universities, even high schools in the UK, we call it secondary school. A lot of this isn’t even baked into the curricula at schools in terms of learning about this space. And it makes a lot of young minds have to go off piece to go online to different portals or different education portals or consume content like yours to get excited about this new world. Do you think we’re missing a trick there where we’re not formalizing a lot of this knowledge and baking it into a lot of the learning curricula at junior school, high school, university? I didn’t see anything like that at the moment.
Mason: Oh, absolutely. I think it is a disservice to society that kids don’t learn about finance at least in the US at any point really in school. And I mean, even like I was a business major in my undergrad, did my MBA and the way we teach and what we teach I think is vastly under-representative of where the world is going. It’s always where the world has been, and that has to change. And I’m so excited about new types of education stuff like Lambda School, which allows people to gain some sort of skill set, and not take 50,000 to $200,000 worth of debt out to get a degree. And so Ed Tech is something that I think is going to be an incredibly massive trend over the next two decades. And I’ll be really curious to see where my kids end up going and how they end up learning, whether they go to college or whether they do something newer at that time.
Ray: Yes. It’s interesting. You mentioned that organization. There’s an organization in the UK called Metaverse, funnily enough, called Metaverse where they’ve completely re-imagined the classic apprenticeship, which was quite big in the UK, in the ’80s, ’90s, but was considered psychologically as a fallback position. But now they’re going to major brands, the likes of the big four, accountancy firms, big four consulting firms, engaging their leadership, their HR leadership. They’re signing up some huge names who are saying it’s amazing bright minds who don’t go to your typical red brick rivaling university. Let’s just get them at 18 and build them a curriculum so they can operate in a McKinsey or a Deloitte and ramp faster and perform better. So I couldn’t agree with you more. I think education is not even being touched by technology innovation in the last 20, 30 years. It’s hugely underserved. Fingers crossed it will change a lot in the next 10 to 15 years.
Mason: Yes. Big tech is for sure, going to be looking at the margins in the education world and say, hey, I think we can do better.
Ray: Yes. You’re already seeing that. I think there are a few of the big tech players who just had their own configured customized university. I think Google is already doing this.
Mason: Yes. With their certifications and stuff.
Ray: They come here at 18, 19, you don’t have to go to college. We’ll just groom you for a spectacular career at Google where you can have a tour of duty around a lot of different companies. So I think that’s so much more of a thoughtful way of getting yourself ready for your career and being able to perform. So, yeah, it’s definitely a space that we serve here at PatSnap and we’re keeping a close eye on, for sure.
Mason: Yes. Love it. If I wasn’t working in crypto. Ed Tech would potentially be next on deck.
Ray: Brilliant. Well, Mason, I enjoyed our exchange today. It’s been a bit of a roller coaster around the wonderful world of digital assets and crypto. So I think it will be super valuable to our audience. Mason, pleasure as always, and hopefully, we can catch up for part two at some point next year?
Mason: Thanks, Ray. And yes, let’s definitely do it.
Ray: Cheers. Have a nice one.