Welcome to the Block & Mortar newsletter! Every week, I bring you the top stories and my analysis on where business meets web3: blockchain, cryptocurrencies, NFTs, and metaverse. Brought to you by Q McCallum.

Reading online? Subscribe to get this in your inbox whenever it's published.

#75 - The value of NFTs, new goggles, and assorted news

Description: A woman, in a black coat, has her back to the camera.  She is facing a wall of paintings in an art gallery.  Photo by Zalfa Imani on Unsplash.

(Image credit: Zalfa Imani on Unsplash )

It’s the first newsletter of October.

Sometimes web3 has a quiet month-end, and I can deliver the media roundup with no worries that news will pile up that week. Other times, Stuff Keeps Happening™ and the month’s first issue is a flurry of short items.

We have the latter case this time around. There’s one longer segment to start, then a handful of quick links.

Merch and penny stocks

You may remember the Pudgy Penguins NFT collection from earlier this year. In June I ran a segment on their plan to release physical merchandise. Those plans have materialized (no pun intended) and the toys will be sold through Walmart:

Each Pudgy toy comes with a unique birth certificate that allows users to claim unique traits for their digital Forever Pudgy character inside Pudgy World by scanning a QR code, Pudgy Penguins said. The toy designs feature traits based on IP from NFT collections, including Meebits and DeGods. And since all of the toys are connected to existing pieces of NFT IP, the current NFT holders will receive licensing royalties for each corresponding toy that is sold at Walmart, Pudgy Penguins said.

Additionally, Pudgy toys sold at Walmart will offer consumers the chance to find a golden ticket, which provides access to a rare trait for their Forever Pudgy Penguin in Pudgy World.

Reading that excerpt, I see that the Pudgy Penguins crew has studied the NFT-for-value playbook. It’s something I summarized back in June:

Atoms, as a tie-in to bits. Even better. I realize the NFT rallying cries of “community” and “utility” sound cliche but they’re important for bringing people in and keeping them engaged. The fact that these are physical objects reinforces the idea that consumers have something even if the Pudgy Penguins company and tech infrastructure disappear.

Bonus points for releasing a toy in time for the year-end rush for kids’ gifts. Perhaps Walmart’s numbers will see a slight bump as a result.

What’s next for Pudgy Penguins, then? Hmmm. Every other toy collection has a movie tie-in, so why not this one? The Penguins group could send exclusive, early-access tickets to NFT holders. They could complete the loop by offering special deals to those who bring their plush toy to the cinema: scan it to get a free snack, scan an on-screen QR code to unlock new perks … the list goes on and on.

If any of those happen: you heard it here first.

But what’s it worth?

Shortly after reading the Pudgy Penguins story, I came across a report stating that 95% of NFTs are worthless.

Can I level with you? That number seems rather low.

Hear me out:

Deep down, most NFTs are plain old images that anyone can right-click-download. They don’t do anything. The value you get from buying one is mostly the warm’n’fuzzy feeling of seeing your name (well, your wallet address) etched into a blockchain next to an image.

In order to sell some NFTs on the open market, you’ll need to add some financial value to motivate your buyers. How would you do that? If we put you in the shoes of an NFT creator – During the 2020-2021 heyday, before Crypto Winter set in – you could:

  • Try the scarcity approach: Maybe you roll up your sleeves and apply decades of skill to create artwork that people will fight over. Or you could steal your kids’ preschool drawings. (Sadly, image-generation services like Stable Diffusion won’t land until 2022.) But this is iffy. While your collection is one-of-a-kind, no one knows who you are. The scarcity won’t help.
  • Attach some after-market hardware to the NFT: “Pay me $10,000 for membership to this exclusive club/restaurant/gym, and I’ll toss in this JPEG for free.” But now you have to come up with something of real value, which really brings you back to square one.
  • Hype it up: Hype adds value without substance. Producing hype requires little more than a willingness to repeatedly shout “hey this thing is so cool; you totally want it” into social media.

Hmmm. Yes, you’ll want to go with hype.

And remember, we’re doing this in the 2020-2021 time frame. Buyers are high on a cocktail of Several Years of Zero Interest Rates and Early-Pandemic Stimulus Checks, with a splash of Very Eager to Try This Crypto Thing. You can’t lose.

The sum total of this approach:

  1. It costs you next to nothing to create and market your work.
  2. If you find buyers, it’s almost all profit.
  3. And if no one bites? See #1.

That makes for one hell of a lottery ticket. How did we wind up in a world where only 95% of NFTs are worthless?

To be clear, this isn’t unique to NFTs. Asset bubbles and fad diets follow similar mechanics. (Check the scene of AI startups if you don’t believe me.)

So when we look at the remaining five percent (or possibly point-five percent) of NFTs that actually have some real value, what sets them apart from the rest? It’s that they provide something beyond “hey this ledger says this image is mine.” They’re all NFTs With Benefits.

We’ve seen this same approach with the fashion industry and phygital merch, with restaurants using NFTs as loyalty cards, and even with the plastic airline loyalty card in your wallet. The token that you hold is just one element of the full package of value.

And now that the era of easy money is behind us, NFT collections will have to provide something above and beyond just a JPEG.

On a new quest

The Artist Formerly Known As Facebook is releasing its newest headset. The Quest 3 has the improved hardware specs you’d expect with any new device. And according to this piece I found in Les Echos, it differs from its predecessor in a couple of other key ways.

(Side note: I tried to find English-language coverage here, but those articles all focused on the technical details of the new headset. The article in Les Echos offered a different perspective.)

First, the Quest 3 adds augmented reality (AR) to its existing virtual reality (VR) capabilities. Maybe this is to compete with Apple’s upcoming Vision Pro mixed-reality headset. Maybe it’s Meta’s way of conceding that AR is where the customer appetite is going. Maybe, just maybe, this will take some of the heat off of their all-VR Horizon Worlds metaverse property. And because this is Facebook’s parent company we’re talking about, maybe it’s a way to gather more data about end-users’ private lives. Maybe.

Second, the Quest 3 announcement included details of a new partnership. Quest users will be able to access the Microsoft gaming library. VR Halo, anyone? The Microsoft Office apps will also be available for the professional set. This neatly dovetails with Meta’s desire to be the workplace metaverse property.

Interestingly enough, the linked article posits that Meta’s move into gaming and office apps could be a first step in a shift away from advertising as a revenue stream. No telling whether that’s the case, but it would make sense. The adtech ecosystem faces the triple threat of end-user privacy concerns, Apple’s privacy-focused updates to iOS (which allegedly took a $10B bite of Meta’s ad revenue), and new regulation (including Europe’s DSA). Now would be a good time for ad companies to diversify their offerings. Games and office apps look like a safe harbor.

Making the most of those physical locations

MoneyGram is getting into the crypto wallet game. This is par for the course as MoneyGram is all about, well, moving money. And their physical presence will make it easier for people to move money not just between users, but also between the crypto and fiat ecosystems:

The wallet will also have access to MoneyGram’s existing fiat on- and off-ramps on Stellar.

MoneyGram’s digital wallet will benefit from a significant network of physical ATMs and payment centers which will allow users to easily off-ramp. There are 350,000 money transfer locations globally, according to the company.

Of special note is that theirs will be a noncustodial wallet, which means that end-users will maintain their own keys. It sounds like MoneyGram is sticking to its core business and sees crypto as new on- and off-ramps for that system.

Writing it down

New York’s Department of Financial Services (DFS) will require crypto firms to share how they decide to list and delist coins. These firms will also have to let the regulator know when they add a new coin to their mix.

This may sound like red tape, but I think it’s generally a good idea to document these kinds of policies and procedures. For one, it leads companies to think through key decisions. Two, it insulates them from absences or departures of key decision-makers. And three, should you find yourself hauled before a judge, you can simply point to the write-up and say “this decision we made was consistent with company policies, which are on-file with DFS.” That sounds a hell of a lot better than “um yeh that’s just what Bob felt like doing that day.”

Drama, part 1

Remember Three Arrows Capital (3AC)? They were a crypto fund that, like so many others, blew up around the Terra/Luna collapse way back when. (And by “way back when,” I mean “not even eighteen months ago.” Crypto sure knows how to pack a lifetime into a short window.)

But what really made 3AC stand out is how co-founders Kyle Davies and Su Zhu handled the fallout: they took some time off to surf, and paint, and do a lot of other things that were Definitely Not Living On the Run and were Most Certainly Cooperating With Authorities.

Or maybe not.

Zhu was arrested in Singapore late last week.

As of this writing, no word on Davies’s whereabouts. But if someone in a trenchcoat and sunglasses tries to pay Zhu a visit …

Drama, part 2

The trial of That Guy is kicking into gear. It’s scheduled to start Tuesday. If you’re a subscriber, that translates to “shortly after this lands in your inbox.”

In case you need a refresher, TechCrunch’s Jacquelyn Melinek has assembled a timeline.

The wrap-up

This was an issue of Block & Mortar.

Who’s behind Block & Mortar? I'm Q McCallum. I've spent the past two decades in the emerging-tech space. And I'm very interested in web3 use cases.

Credit where it's due. Big thanks to Shane Glynn for reviewing early drafts. Any mistakes that remain are mine.

Reading this online? Or as a forward? Why not sign up? Get Block & Mortar news in your inbox, whenever it's published.

Privacy statement: I don’t share/rent/sell your personal info. Seriously.