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Speaker 1: This is Bloomberg Crypto, a daily Bloomberghart podcast, and I'm

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Speaker 1: Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.

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Speaker 1: It's Wednesday, November nine. Evangelists of web three, a term

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Speaker 1: popularized by venture capitalist Chris Dixon, will often say that

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Speaker 1: a big goal of the whole thing is giving more

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Speaker 1: power to create us, and especially monetary power. Web three,

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Speaker 1: these proponents say, will allow artists, musicians, and creators of

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Speaker 1: all stripes to cut out middlemen and into mediaries and

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Speaker 1: retain more of the financial benefits of their work. In

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Speaker 1: other words, y pa a platform or an agent or

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Speaker 1: a dealer when you can keep all of your revenue

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Speaker 1: for yourself. But this is where things get a little

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Speaker 1: bit complicated. If you're an artist or musician and you

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Speaker 1: sell your work as an n f T, you'll definitely

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Speaker 1: get paid the first time you make that sale. But

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Speaker 1: what happens if the person who bought it from you

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Speaker 1: then sells it to someone else. In the idealized version

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Speaker 1: of n f T s, you get a royalty on

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Speaker 1: that sale automatically. In reality, many of these transactions aren't

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Speaker 1: actually set up that way. For more in the current

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Speaker 1: states of n f T s and how platforms are

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Speaker 1: thinking about these royalties. We'll hear from Bloomberg Crypto Report

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Speaker 1: to Olga Karif over nine percent of all of the

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Speaker 1: n f T sales or wash trading, and now most

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Speaker 1: n f T trackers actually have a button new press

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Speaker 1: to get rid of all of the worst trading volume

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Speaker 1: meant to see what's actually happening in the market. And

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Speaker 1: from Dr Lauren van hoften Chick, who is an Andrew W.

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Speaker 1: Mel And Postdoctoral Fellow at the Center for the Humanities

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Speaker 1: at Wesleyan University. Platforms are the middle people, and by

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Speaker 1: that I mean they kind of become equivalent to dealers

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Speaker 1: in a way, and I you know, dealers have played

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Speaker 1: a really important role in this history in their ability

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Speaker 1: to work with artists. Olga, Lauren, Welcome to the show. Olga.

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Speaker 1: It's always a pleasure to have you on. And you know,

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Speaker 1: one of the things that you have extensively reported on

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Speaker 1: and that you've even talked about in previous episodes is

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Speaker 1: how the market for non fungible tokens is doing. We are,

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Speaker 1: I don't know, months into crypto winter at this point,

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Speaker 1: and it feels like one of the bigger casualties of

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Speaker 1: shall we say, the decline in sentiment has been what's

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Speaker 1: happening with n f T s? Like, what are the

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Speaker 1: numbers these days? Since the beginning of the year through

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Speaker 1: the third quarter of sales volume is down. N f

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Speaker 1: T average selling prices are down by you know, a

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Speaker 1: numbers of magnitude, and the number of buyers in the

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Speaker 1: market is also you know, active buyers and sellers also

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Speaker 1: seems to be down a bit. Interest in n f

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Speaker 1: T s has fallen off a cliff. Trading volumes for

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Speaker 1: n f T s, which are basically just digital art

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Speaker 1: and collectibles that are recorded on blockchains, has tumbled from

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Speaker 1: a record high in January. So what's the past forward

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Speaker 1: for n f T s? Will we find a good

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Speaker 1: use for the underlay this? The n f T market

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Speaker 1: has definitely been um impacted in part by following cryptocurrency prices,

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Speaker 1: but also by some factors that just relate to just

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Speaker 1: this specific market. What are some of those factors? So

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Speaker 1: with with cryptocurrency, there are lots of use cases for

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Speaker 1: it with enough tase, what we've seen so far is

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Speaker 1: that most enough teas that have been popular, they essentially

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Speaker 1: don't do anything there, you know, say, pictures of you know,

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Speaker 1: acute animal or or an ugly cartoon character in it,

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Speaker 1: right exactly, and it doesn't really do anything useful. Whereas

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Speaker 1: you know, years ago people were dreaming of finn ft

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Speaker 1: is being used as tickets and ft is being used

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Speaker 1: as you know, membership cards to U two events, and

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Speaker 1: some of them are used this way, but this is

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Speaker 1: a minority of uses. So Olga, you you talk about

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Speaker 1: this idea of utility tokens, right, and we've seen a

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Speaker 1: handful of examples of the idea of you know, your

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Speaker 1: n f T gives you a v I P all

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Speaker 1: access past to like backstage at a concert. We have

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Speaker 1: had folks talk about, well, you know, your n f

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Speaker 1: T s can unlock restaurant experiences or and we've even

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Speaker 1: profiled creators, especially musicians, who have been able to directly

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Speaker 1: monetize their music on the blockchain without having to go

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Speaker 1: through things like a Spotify or an Apple Music. And

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Speaker 1: then of course there is like the in game economy

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Speaker 1: in places like actually Infinity, But to your point, the

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Speaker 1: vast majority of the volume and the like truly sky

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Speaker 1: high prices were really in and around the art end

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Speaker 1: of the market. Lauren, what I'd love to get your

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Speaker 1: perspective on as a person who studies this, you know,

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Speaker 1: I guess for fun and for work. But but what

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Speaker 1: I'd love to get your perspective on is what were

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Speaker 1: some of the dynamics of the art market that these

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Speaker 1: types of n f t s were like explicitly rejecting,

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Speaker 1: as it were, like, what were they supposed to be

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Speaker 1: doing differently and better? N f t s have you know, really,

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Speaker 1: I think appealed to a lot of artists because they

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Speaker 1: have offered a relatively seamless solution for collecting resell royalties,

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Speaker 1: so that the artists would get a percentage of the

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Speaker 1: sale price whenever their work resales, um thereby being able

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Speaker 1: to share in those profits. Now, historically, recent royalties have

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Speaker 1: pretty famously been uh largely rejected by the traditional art market. Actually,

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Speaker 1: in a very well known artist contract was written by

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Speaker 1: the dealer and curator Seth ste globe Um, which has

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Speaker 1: been taken up by a number of artists since. In

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Speaker 1: a very very very famous clause within that contract gives

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Speaker 1: artists fift of the upside whenever their work resells. And

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Speaker 1: so the great thing about n f t s and

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Speaker 1: smart contracts. As many artists see it is that all

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Speaker 1: of the work to and negotiate a contract that kind

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Speaker 1: of convince UM a dealer to accept an artist's desire

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Speaker 1: to use one UM or you know, to to convince

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Speaker 1: a collector that the artist wants to share in the

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Speaker 1: resale value is now kind of taken care of through

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Speaker 1: the basic automation of a smart contract. And really remarkably,

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Speaker 1: um reselle worlties became pretty standard across n f T

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Speaker 1: platforms from day one. Um So even the first blockchain

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Speaker 1: based platform for selling art, Monograph developed in actually replicated

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Speaker 1: the resale royalty clause from this nine contract in an

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Speaker 1: attempt to kind of do what the traditional art market

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Speaker 1: wasn't able to an OLGA one. One thing about what

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Speaker 1: Lauren is saying is after having all of this progress

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Speaker 1: over the past, you know, several years, in the past

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Speaker 1: several months, we've seen a kind of a reversal in

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Speaker 1: that standard. Absolutely, so it's it's pretty amazing and uh,

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Speaker 1: it really has had a huge impact on the entire

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Speaker 1: end of tea markets. So previously um the largest marketplace

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Speaker 1: and of tea marketplace was open Sea. Back in March,

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Speaker 1: it commanded eight pcent market share. And what they did

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Speaker 1: was they, as part of you know, signing up for

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Speaker 1: a sale on this marketplace, you know, you would fill

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Speaker 1: out a royalty, check out a royalty box. Essentially you

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Speaker 1: would place a royalty of two and a half to

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Speaker 1: typically on on on an n f T resale. And

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Speaker 1: a lot of artists loved that because, like Laurence said,

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Speaker 1: this finally opened an avenue for them to get paid

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Speaker 1: on on secondary sales. But the problem is that UM

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Speaker 1: n f T royalties are not enforced through a smart contract.

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Speaker 1: There in fact enforced by n f T marketplaces like

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Speaker 1: open sea that support them. And what happened in recent

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Speaker 1: months is that several new n f T marketplaces have

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Speaker 1: view did you know in the spring and in the

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Speaker 1: in the summer, and what they said was will make

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Speaker 1: royalty is optional? And essentially when they make royalty is optional,

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Speaker 1: of course nobody wants to pay them. And this marketplace

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Speaker 1: has gained a ton of market share. So what we've

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Speaker 1: seen is that open Seas market share dropped from in

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Speaker 1: March two at the end of September. Coming up more

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Speaker 1: on what's happening with the n f T markets and

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Speaker 1: to artists, especially as it relates to resale royalties. Lauren,

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Speaker 1: having studied this in the quote unquote real world as

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Speaker 1: well as now in the digital world, what are artists

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Speaker 1: to do? I think I want to push back a

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Speaker 1: little bit in the sense that, let's keep in mind

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Speaker 1: that n f T platforms have only existed in a

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Speaker 1: sizeable scale since okay maybe, and only really exploded less

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Speaker 1: than two years ago. So I think this is all

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Speaker 1: still very very new, and we can't forget that. Um.

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Speaker 1: I think we still are in a place where norms

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Speaker 1: and standards are kind of up in play, and there

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Speaker 1: are still plenty of platforms that are promoting Reselle royalties

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Speaker 1: and even just the sort of principle of equity, and

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Speaker 1: so I don't want to discount that. Actually, I think that,

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Speaker 1: you know, it's really important to recognize the fact again

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Speaker 1: that things still are very much information just as these

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Speaker 1: new developments of you know, platforms that don't give royalties

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Speaker 1: are quite new, well who knows what's around the corner,

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Speaker 1: And already there are n f T makers who are

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Speaker 1: pushing back against new platforms that don't have royalties built in.

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Speaker 1: You know, resell royalties are are one thing to point

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Speaker 1: to but I all so don't believe that we should

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Speaker 1: limit that. Are are our conversations around the kind of

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Speaker 1: financial possibilities of v n f T s to something

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Speaker 1: like resell royalties. I'm also very interested in artists who

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Speaker 1: are looking to more broadly redistributive models and recognizing just

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Speaker 1: the simple kind of administrative cost advantage of what you

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Speaker 1: can do when you can automatically pay a number of

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Speaker 1: people or site organizations, you know, et cetera. Um So,

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Speaker 1: Sarah Loody as an artist who shows a bit forms

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Speaker 1: gallery and um has developed a future n f T

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Speaker 1: agreement where thirty cent of the sale would go to

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Speaker 1: her gallery, but that would be divided among the staff.

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Speaker 1: But so that's like one kind of model of how

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Speaker 1: we can rethink what art sales are doing in the

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Speaker 1: first place. Could these models exist outside of a blockchain

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Speaker 1: enabled technology, right, Because to you know, Olga's earlier point,

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Speaker 1: it was not actually and on chain mechanism that was

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Speaker 1: enforcing secondary royalties, It was sort of the will of platforms.

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Speaker 1: And I think, Lauren, what you're pointing to is that

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Speaker 1: the will of either individual creators or collectives of creators,

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Speaker 1: and the you know, like the ecosystem in which they

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Speaker 1: operate is equally, if not more important in terms of

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Speaker 1: standard setting. And what I'm what I'm always fascinated by

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Speaker 1: in crypto is this tension between the rhetoric of decentralization

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Speaker 1: being for the greater good and the reality that some

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Speaker 1: degree of centralization is where norms come from and can

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Speaker 1: be standardized and enforced. And so, Lauren, what I'd love

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Speaker 1: if you used to just kind of elaborate on is

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Speaker 1: what is it about the digital power of things like

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Speaker 1: royalties that seem to make people perhaps more interested, more

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Speaker 1: amenable to thinking about things differently, even if they don't

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Speaker 1: actually need the digital peace to enforce those mechanisms. Yeah,

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Speaker 1: I think it's a very good question. Uh, there are

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Speaker 1: a few factors here. One again, I think, is the

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Speaker 1: kind of automation factor. You know, contracts are contracts with

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Speaker 1: something like a controversial term like recent royalties in them

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Speaker 1: are very difficult to negotiate one on one to present

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Speaker 1: somebody with, especially for somebody like artists who have historically

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Speaker 1: been in the lower bargaining position. So I think that's

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Speaker 1: one thing I think too. You know, the the rise

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Speaker 1: of these platforms, you know, came not entirely from people

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Speaker 1: who were you know, already immersed in the traditional art

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Speaker 1: world and already kind of had those standards in mind.

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Speaker 1: And I'm thinking about super Rare, for example, the people

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Speaker 1: who started super Rare, we're coming from the music industry Spotify,

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Speaker 1: and so their understanding of a royalty was actually thinking

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Speaker 1: about music royalties and thinking about, well, you know, creators

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Speaker 1: there get to share in, you know, some kind of

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Speaker 1: profit or profit in some way each time you know,

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Speaker 1: a song is played or whatever. Of course, music is

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Speaker 1: a very different type of good than an artwork or

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Speaker 1: even you know, some kind of digital image. Um But nonetheless,

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Speaker 1: I think it's you know, interesting to think about the

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Speaker 1: different kinds of factors at play and influences that play

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Speaker 1: that have really made for a quite unique combination of

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Speaker 1: things now that we didn't quite see before. And the

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Speaker 1: fact that um n f T buyers tend to not

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Speaker 1: participate in the traditional art market. It's not that you

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Speaker 1: had a bunch of buyers who were coming from you know,

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Speaker 1: Brooklyn Gallery Life who were used to one way of

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Speaker 1: doing things now coming into n f T s. You

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Speaker 1: had people who are coming to n f T s

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Speaker 1: as their way into the art market right exactly. And

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Speaker 1: I think it's going to be very interesting to watch

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Speaker 1: what happens more and more if, say, n f T

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Speaker 1: buyers who had become accustomed to buying works so the

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Speaker 1: resemb yalty attached, you know, make their way into the

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Speaker 1: trade sational art market, and then artists there ask for

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Speaker 1: recent royalties. Will those collectors say no? Although one thing

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Speaker 1: I want to make sure that we address and when

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Speaker 1: whenever we talk about volumes is just this idea of

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Speaker 1: wash trading, because for a while, one of the big

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Speaker 1: criticisms of folks who were, you know, saying like, oh

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Speaker 1: my god, look at these amazing prices and volumes on

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Speaker 1: a lot of these platforms was in some cases these

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Speaker 1: were sales that were not exactly traditional in the sense

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Speaker 1: of this is this is a buyer exchanging this with

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Speaker 1: a with a seller. Can you just explain what wash

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Speaker 1: trades were and n f T s and how they

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Speaker 1: affected some of this data. What trading would be, you know,

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Speaker 1: person basically selling an n f T between his own accounts,

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Speaker 1: right back and forth, back and forth. And the reason

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Speaker 1: this was happening was because some of the n f

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Speaker 1: T marketplaces offered their own tokens to uh two people

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Speaker 1: based on the amount of activity on the marketplace. And

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Speaker 1: so the more trading you did, the more of those

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Speaker 1: tokens you earned. And in some cases those tokens were

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Speaker 1: quite valuable and they could appreciate in price by some estimates.

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Speaker 1: You know, over nine of all of the n f

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Speaker 1: T sales for wash trading. And now most n f

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Speaker 1: T trackers actually have a button new press to get

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Speaker 1: rid of all of the trading volume. Meant to see

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Speaker 1: what's actually happening in the market a lot harder to

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Speaker 1: do in physical arts, Lauren. I would imagine um, so Lauren,

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Speaker 1: as just as a kind of a closing thing. I'm

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Speaker 1: really interested in what you said about, you know, the

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Speaker 1: differences in standards and principles going all the way back

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Speaker 1: decades in terms of physical galleries and you know, art

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Speaker 1: versus what you're seeing in n f T s. Are

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Speaker 1: there any good things that you have observed in putt

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Speaker 1: on quote traditional art markets that you think food who

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Speaker 1: are trying to innovate and digital should adopt. Hm hmm.

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Speaker 1: That's a fantastic question. I think it's a real danger,

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Speaker 1: um that there's so much rhetoric against you know, the

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Speaker 1: scare quotes middleman among n f T creators and platforms.

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Speaker 1: You know, the platforms are the middle people, and by that,

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Speaker 1: I mean they kind of become equivalent to dealers in

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Speaker 1: a way. And I think, you know, dealers have played

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Speaker 1: a really important role in this history in their ability

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Speaker 1: to work with artists to like realize for artists the

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Speaker 1: kinds of sales and artists want, you know, to help

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Speaker 1: artists be able to show the kind of work that

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Speaker 1: they want. And you know, I really do believe that

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Speaker 1: dealers as well as curators can be serious advocates um

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Speaker 1: and partners with artists. And I don't think that that

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Speaker 1: relationship has translated to this new world, so that I

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Speaker 1: would like to see the importance of relationship apps here

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Speaker 1: be taken much more seriously. Thank you Olga, and thank

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Speaker 1: you Lauren. You can find more of Olga's reporting on

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Speaker 1: the Bloomberg terminal, on Bloomberg dot com and on Twitter.

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Speaker 1: She's at Olga Karf. That's O l G A k

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Speaker 1: H E R I F. On the next episode of

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Speaker 1: Bloomberg Crypto, how do five hundred investors feel about the

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Speaker 1: prospects for digital assets? Well, we asked them, why do

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Speaker 1: so many of them perceive the Why do so many

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Speaker 1: of them perceive the likelihood of regulation as bullish for

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Speaker 1: the asset class, we'll discuss the findings of a recent

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Speaker 1: Bloomberg Markets Live Pulse survey. This is Bloomberg Crypto, a

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Speaker 1: your comments, questions, or suggestions for the show to Crypto

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Speaker 1: at Bloomberg dot net or find us on Twitter. We're

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Speaker 1: at Crypto. The supervising producer of Bloomberg Crypto is Vicky Verglina.

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Speaker 1: Our senior producer is Janet Babin. Our producers are Mohammed

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Speaker 1: Faruk and Sharon Barriro. Our associate producers are Ty Butler

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Speaker 1: and Moses on Them. Desta wonder At is our engineer.

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Speaker 1: Original music by Leo Sidron. I'm Stacy Marie Schmal. We'll

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Speaker 1: be back tomorrow.