Autor Cointelegraph By Max Parasol

When the U.S. government sanctioned coin mixer Tornado Cash, many thought it might spell the end for illicit crypto mixing services. But they’re back — and with a glossy new institutional sheen and legit use cases to help traders and funds keep their market moves a “trade” secret. Tornado Cash is what is known as a “mixer,” a “coin anonymizer” that breaks the identifying links in blockchain transactions, providing a certain degree of anonymity for users.

The reasons people use coin anonymizers vary from criminality to ideology. Bad actors can use Tornado Cash to hide their naughty deeds, effectively laundering the proceeds of crime and preventing stolen crypto from being traced to them on the blockchain. That’s why the United States Department of the Treasury’s Office of Foreign Assets Control sanctioned the protocol last year. 

But there are legitimate reasons for not wanting your every transaction tracked, and supporters argue that Tornado Cash provides important privacy infrastructure. But is it possible to build a privacy-preserving protocol that provides regulators with just enough information to know users are staying on the right side of the law? 

Various developers are experimenting with redesigned mixers using ZK-proofs and believe there’s a way to make it happen.

Text generator ChatGPT is the fastest-growing consumer app ever, and it’s still growing rapidly.

But the dirty secret of AI is that humans are still needed to create, label and structure training data — and training data is very expensive. The dark side of this is that an exponential feedback loop is being created where AI is a surveillance technology. And so, managing the humans in the AI loop is crucial.

Some experts believe that when (potentially) robots take over the world, they’d better be controlled by decentralized networks. And humans must be incentivized to prepare the data sets. Blockchain and tokens can help… but can blockchain save humanity from AI?

ChatGPT is just regurgitated data

ChatGPT is a big deal according to famed AI researcher Ben Goertzel, given that “the ChatGPT thing caused the Google founders to show up at the office for the first time in years!” he laughs. Goertzel is the founder of blockchain-based AI marketplace SingularityNET and an outspoken proponent of artificial general intelligence (AGI) — computers thinking for themselves. That means he sees where ChatGPT falls short more clearly than most.

“What’s interesting about ChatGPT and other neuro models is that they achieve a certain amount of generality without having much ability to generalize. They achieve a general scope of ability relative to an individual human by having so much training data.”

Ben Goertzel and his robot Desdemona (How to prevent AI from ‘annihilating humanity’ using blockchain)

Read also: How to prevent AI from ‘annihilating humanity’ using blockchain

In other words, ChatGPT is really one function achieved by the brute force of having so much data. “This is not the way humans achieve breadth by iterative acts of creative generalization,” he says, adding, “It’s a hack; it’s a beautiful hack; it’s very cool. I think it is a big leap forward.” 

He’s not discounting where that hack can take us either. “I won’t be shocked if GPT-7 can do 80% of human jobs,” he says. “That’s big but it doesn’t mean they can be human-level thinking machines. But they can do a majority of human-level jobs.” 

Logic predicated on experience remains harder for AI than scraping the internet. Predicate logic means that humans know how to open bottle caps, for example, but AIs need trillions of data to learn that simple task. And good large language models (LLMs) can still turn language into presumptive logic, including paraconsistent logic, or self-contradictory logic, explains Goertzel.

“If you feed them the whole web, almost anything you ask them is covered somewhere on the web.”

Goertzel notes that means part of Magazine’s questioning is redundant. 

“I’ve been asked the same questions about ChatGPT 10 times in the last three weeks, so we could’ve just asked ChatGPT what I think about ChatGPT. Neuromodels can generate everything I said in the last two months, I don’t even need to be saying it.”

ChatGPT 4 hasn’t been updated recently enough to tell us what Goertzel thinks in the past three weeks. But if it had, it could. (GPT-4 via Forfront.ai)

Goertzel is important in AI thinking because he specializes in AGI. He says that he and 90% of his AGI colleagues think LLMs like ChatGPT are partly a distraction from this goal. But he adds LLMs can also contribute to and accelerate the work on all kinds of innovation that could play a role in AGIs. For example, LLMs will expedite the advancement of coding. LLMs can even help ordinary people with no coding abilities to build a phone or web app. That means non-tech founders can use LLMs to build tech startups. “AI should democratize the creation of software technology and then a little bit down the road hardware technology.”

Goertzel founded SingularityNET as an attempt to use blockchain and open-source technology to distribute access to the tech that controls AGIs to everyone, rather than let it stay in the hands of monopolies. Goertzel notes that ChatGPT and other text apps deploy publicly viewable open-source algorithms. And so, the security infrastructure for their data sets and how users participate in this tech revolution is now at a crucial juncture.

Crypto communities can often implode, despite the best intentions of everyone involved.

Genuine communities with plausible but convoluted project ideas can fail just as easily as projects like DeFi Wonderland, which imploded because of its CFO’s connection to the controversial, defunct Canadian exchange QuadrigaCX.

Plausible projects face scaling challenges like Zilliqa or project management problems like Bitcoin Diamond… or simply run out of money like any startup. So, they need a strong and well-coordinated community to ensure they can survive if and when things go wrong. 

So, what can be done to help create a healthy community that pulls together to achieve its objectives? Here are some reflections from founders and community managers. 

But for starters what even is a crypto “community?”

What even is a crypto community?

“There’s a lot of moving parts to a community. There’s no one way to define a community in crypto,” says Jett Nathan, community organizer for the Perion gaming DAO.“The types of community have a lot to do with a project. Different crypto initiatives also behave differently whether it be DeFi or NFTs.” As a pro-gaming team, what gels Perion’s DAO together is clear: “members trying to become pro gamers or learning to be programmers.” 

Being part of a community is more than transactional. Owning a coin does not make you a community member. Investor communities want their horse to win, so Twitter feedback loops can make project builds opaque and unrealistic. A project needs to create a digestible story for a community to hold dear. However, the needs of a project and the needs of the community may differ. 

Within the community, traders and true believers are different, too. Traders are obviously incentivized to be passionate about their holdings, as attracting further investors helps their hip pockets. But true believers genuinely have faith in the story, the mission. So, a community can be a pack of wolves or an altruistic group of saints, depending on the narrative.

Founders and project community managers have to play nice and keep these diverse groups in check.

Community stereotypes 

Ivan Fartunov is Aragon’s head of ecosystem. He says, “A community is a community full stop. If you can’t build a good community outside crypto, you can’t build one inside.” Tokens don’t solve every problem, and they won’t hold a community together in a bear market.

“Monetary incentives can also break the social contract. You don’t ask for payment when you invite a friend for dinner. But bull markets mean people do things simply for monetary rewards, and this is a false community that will turn on you as soon as you stop paying.”

For Fartunov, there are three broad categories of crypto communities today, each of which helps and hurts the space in different ways. 

Blind idealists

They have a “‘we will change the world’ idealism and excitement, which is helpful in an industry that requires you to hold convictions others will call ‘crazy.’ Some of them tend to be too academic in thinking; others are democracy maxis. But democracy doesn’t always work too well. Usually, academic concepts don’t translate well in this space.” Still, everyone has to be a little bit of an idealist to realistically work in Web3.

Moon bois 

Fartunov says unlimited financial upside “is the gateway for the moon bois, and a lot of people enter the space with that mindset.”

Each adoption cycle is driven by moon bois hoping to get rich quickly on the latest upswing: “In 2013, we had the Bitcoin forks — the first wave of shitcoins. Then in 2017–2018, we had initial coin offerings — a lot of white papers and proof-of-concepts and little intent by founders to do much real world applications.” “Then in 2020–2021, we had DeFi and NFTs – promising interesting applications, but the financial upside is what generated the most interest. Hopefully, some of these people stick around and join one of the other two types of communities.”

Read also

Features
DeFi vs. CeFi: Decentralization for the win?

Features
You don’t need to be angry about NFTs

Pragmatic buildersThese are the most useful community members and the ones who actually get stuff done. They’re “pragmatic builders, who have a long-term horizon; they’re looking to build solutions for problems within the industry. They realize ‘the paradigm shift’ is not really just around the corner, and things should first make sense in the Web3 sandbox.” 

But keen speculators and builders are not mutually exclusive, says Fartunov. Being active and connected in the space helps speculators transition into builders and join decentralized autonomous organizations (DAOs) thanks to their relationships, and familiarity with the tools being used as well as the common pain points. Yet DAOs — let’s call them “non-hierarchical not-so-automated bodies” — have also further complicated crypto communities. Are DAOs even a good product management tool?

Failed DAO experiment

Fartunov participated in the Aragon Network DAO experiment, which is set to wind down soon via an active vote. The DAO was built to test-run three experimental products from Aragon, including a decentralized court system. No one objected to the idea, and the 11-month DAO-based project generated insights, but in Fartunov’s opinion, it is not sustainable. As these three governance products are being shut down — the DAO is, too.

Workstreams and contributors appeared readily, says Fartunov. The problem was that there was little filtering of contributors. “When you give the job to the first person to raise a hand, you create the incentives to attract people who are good at raising their hand, not necessarily at delivering the work,” he says. “There are undeniably some great people in there, but overall, you can end up with a bloated contributor base. It was the opposite of a lean startup.”

“Too little accountability of output is how a community implodes.”

“Still, we have a good core team as well as some strong contributors who could see the ratio of burn rate to output was off. Without a gut check there, you can just spend the entire treasury on unrelated moonshot pursuits, and the project would cease,” Fartunov tells Magazine.

Crypto is a coordination tool, and crypto-economic primitives accelerate community building. Aligning personal incentives with the best direction for the organization is crucial because teams have strong financial incentives to keep their workstreams funded, even if it’s not adding any value. 

So, while some crypto believers now have a strong affinity to DAOs as the glue that holds “Web3 Kickstarters” together, project treasuries can suffer from inefficient spending with foresight — the tragedy of the commons. The solution to this existential crypto problem may be mechanical or cultural, Fartunov now reflects.

“Crypto communities can actually be more aggressive in a good way, as they can introduce incentives for certain actions without relying on social pressures,” says Fartunov.

But DAOs are only an infrastructure layer, notes Fartunov. “You can have cool race tracks, but you need drivers and cars and fans to operate” — in other words, leaders and agenda-setters. DAOs are flat but still need leadership, he says from his experience.

Our vision is to provide the most flexible and secure tools for creating and managing decentralized organizations, allowing governance experimentation at the speed of softwareHere’s the strategy the core teams are following to fulfill this vision??https://t.co/GKBcf41fjG— Aragon ? (@AragonProject) October 6, 2022

Try things out but pick a clear direction 

Another common challenge for DAOs is a lack of strategy. Exploring all paths simultaneously is too expensive. “You can’t go off vision alone — you should be somewhat specific in the path to get there,” he says. For example, Uniswap is establishing a foundation to drive the product, and MakerDAO is now engaged in some heavy debates on how to determine a consistent path forward, says Fartunov. 

A lack of clearly communicated strategy is the problem. “If you have several hypotheses of a first use case, early on, test a few. But ultimately, you must commit the organization to a first use case. Experimentation is important, but there is an organizational limit to the number of experiments you can run in parallel before the vision for the organization gets clouded.”

“But a strategy that is clear can be a self-filtering mechanism for divergent stakeholders.

Work out who has skills

Projects should also vet contributors in terms of reputation and credentials, says Fartunov. There is a lot of promising work around on-chain reputation and verified credentials, but that will take some time to become functionally useful, he says.

He suggests projects start with contributor bounties to identify the skills of a contributor. Then empower them to take on larger workstreams. “Organizations scale at the speed of trust, but trust takes time to build; ultimately, you need a credentialing filter to accelerate.”

“You can use GitHub to vet developers, but outside of that, the system is broken. This maybe explains why so many people are on Twitter being thought leaders — it’s the only way to signal relevant skills and expertise outside your immediate network.”

Aragon DAO’s appointments are made public on its website. Source: blog.aragon.org

Community management is “all about touch points” 

Nick Saponaro founded Divi Project in August 2017 as a 23-year-old just as the ICO boom was beginning to end and “the term ICO was poisoned by then.” In those days, Discord communities were in Slack, and “you could advertise on Google and Facebook, which is no longer legal for decentralized projects.” Their product is a one-click masternode, a blockchain-based passive income yield tool.

He says there is no way to get any particular person to pay attention to most posts on the community’s Discord. Every person has a different agenda, and for most people, it’s purely monetary gain.

So, community building is “all about touch points. Find many ways to connect and explain.”

Saponaro has built a community over five years, and he argues the reason why his Divi Project has lasted is because of its consistent philosophy and modest capital raise of $2 million in late 2017. That has kept his community relatively rational.

“There aren’t many coin-flipping degens in our community. To an extent, that’s our mistake — we are too rational of a community. Degens create hype and exposure but also drop off the fastest. We don’t want to ruin our cool culture.” 

Read also

Art Week
Coldie And Citadel 6.15: The Creator, The Collector, The Curator

Features
Crypto Indexers Scramble to Win Over Hesitant Investors

That culture involves much grassroots activity, such as outreach programs like teaching technical skills in Mexico and charitable food deliveries in the Philippines. 

Building a community should be “totally organic.” It’s a simple formula of delivering a good product after a token sale, he now thinks. Saponaro makes a point to get to know and meet people in the community. “It’s ironic, but the most important thing is building trust with the community.” The crypto personality cult circus means the community needs to see the faces behind the names. 

And there are “wholesome moments” like meeting grandparent retirees – real Nebraska farmers who run Divi masternodes during the winter when there are no crops. And he went to literally his first-ever Texas rodeo with people in the Divi community.

Divi Project founder Nick Saponaro attends his first-ever Texas Rodeo with his community. Source: Nick Saponaro

There are still inflection points, though. “Five years running a project in crypto will see some crazy stuff. Employees go rogue; people will dump a coin,” Saponaro tells Magazine.

Motivations within a community can be complex. “Trolls are very entertaining. One person in our community gets off on saying constantly aggressive things to get a rise of people. Let’s call him ’Steve’ – he’s supportive then he’s not – in a bipolar way. He spreads FUD, but then continues to support the project. We believe he is adding to his position.”

Saponaro notes that community management can be funny and strange, too. “These trolls with a financial incentive are very different kinds of trolls. They create multiple accounts, then go on Twitter and have a conversation with themselves. We are convinced by their use of language and tone of voice that they are talking to themselves on Twitter. It’s kind of funny.”

“They are ideological people who can’t see anything besides their own agenda.

Amplify the NFT champions

NFT communities are very different, and you have to own one of a collection to join. Amanda Gadbow, head of culture and community at Proof, suggests that “an NFT community depends on entry or timeline – mint and right after mint. There’s a lot of euphoria about what the project brings can be monetary value or connections, so much to be said of psychology, or where does this take me? Is this the next Bored Ape?”

But euphoria diminishes quickly. In the beginning, everyone is super excited to be there, but soon enough, “people need to decide if they are in it for the long haul – a community is formed later when a group of people gets together with the same goals.” 

Gadbow was in charge of communications and emergency management for the City of Pasadena in California until earlier this year. Real-world community building translated well to building crypto communities, and her previous role proved the right training for when things go wrong. “We dealt with crazy storms, worked around the clock, so I don’t stress out or freeze — I can think on my feet,” she says.

She was also a stock investor, and while she was on maternity leave in 2019–2020, she was trading options constantly while getting information from social media. Then she started in NFTs. She says there was more psychology behind trading NFTs, which required now spending all day on Twitter and Discord.

Subscribe
The most engaging reads in blockchain. Delivered once a
week.

“I started realizing that I had the background for an NFT community team. I was incredibly passionate about community building, communications and Web3: the three critical components of a successful community manager.”

There is, however, a trade-off between community health and current NFT prices – and a clear correlation between the size and activity of an NFT community and the floor price. So, she says that managing expectations is the key to helping the community move from something based on speculation to something more sustainable.

 “There are so many aspects. Ultimately, it is the activity of a community that makes someone want to buy an NFT and brings people in with a cascading effect,” opines Gadbow.

Moonbirds tattoo, anyone? Source: events.proof.xyz

Proof is an interesting story. It is a flagship members-only NFT group involved with drops like Moonbirds, Oddities, Grails and others. The collective is unique in that access to online investing guru Kevin Rose was a selling point of the NFT collections. Gadbow says that while Rose’s personality cult helped sales, building as a small community first before each NFT range helped organically expand the community. 

“The small community then expanded as demand grew externally. This is the smart way to do it. It’s kind of a road map for everyone else. Find the smaller champions needed to prove yourself as a project.

Champion the community champions then. “There’s the idea that the company works for you. Community managers need to cultivate a long-term mentality for NFTs as a tool for a built-in, engaged network. Amplify the champions who provide nuanced perspectives rather than those who just fear.”

“Communication needs to be pointed and considered during this experimental phase – in 10 years, we won’t be able to experiment as much.”

Fair valuations stop implosions 

Like Divi Project, the proof-of-stake public blockchain Aleph Zero is another smaller but successful organic community project. It has cultivated a community of diehard enthusiasts and brand evangelists, with followers posting footage of the logo on everything from birthday cakes to tattoos to private helicopters. 

Aleph Zero is not a hype-slinging, chest-thumping cliche. “If you respect them, they will stay,” says Antoni Zolciak, a Krakow-based co-founder of the project. 

“The community is really a group of stakeholders in a project. By default, they’re not necessarily customers but, rather, the people you build with. They can have amazing ideas for business development, new products and other things. The community definitely helps to shape Aleph Zero.”

He says that offering a fair valuation is crucial to a long-term community. Lowball valuations and no artificial mechanism to lock in retail investors help create longevity for a community. 

Zolciak notes that it’s a significant spend to build a community but that they sought to do it in an “organic fashion.” The solution is “becoming a community member yourself. It cannot be outsourced.”

Here’s a recap of all the things that happened in the last eight weeks at Aleph Zero! ?Get up to speed by checking out the Monthly Update on our blog ? https://t.co/o3GeUFlkD5We can’t wait to bring you even more product-related news in the near future! ? pic.twitter.com/c7lUrBl0ro— Aleph Zero (@Aleph__Zero) October 7, 2022

“To retain that community day in, day out, answer questions and remain accountable to the group. The perception of availability of founders and core team matters,” says Zolciak. 

Finally, Zolciak says the healthiest community is when a newbie who asks genuine questions is assisted by random community members, which helps encourage them to stick around. “This is how you stop the community from imploding. Founders keep showing up until others step in. It’s like any other relationship: care for it on a daily or weekly basis. Be transparent and caring — then I don’t see how a community can implode.”

Read also

Features
Crypto Crimes Rated: From the Twitter Hackers to Not Your Keyser, Not Your Coins

Features
Bringing contemporary pop art to an NFT metaverse

Max Parasol
Max Parasol is a RMIT Blockchain Innovation Hub researcher. He has worked as a lawyer, in private equity and was part of an early-stage crypto start up that was overly ambitious.

If Andy Warhol — the most famous artist of the 20th century — were alive today, he would make NFTs. The reasoning is simple: because for Warhol, business was art. So, I decided to do some digging and speak to Warhol experts to see if there is a case.

But Warhol was an artist who defies easy definitions, and not everyone was keen to explore the highly speculative nature of the hypothesis. Professor Golan Levin, professor of electronic art at Carnegie Mellon University, said he couldn’t help and instead suggested that I “ask a Warhol biographer or a psychic medium.”

Fair enough. So, I messaged Warhol’s renowned biographer, Blake Gopnik, author of Warhol.

And then I found a Warhol psychic.

Gopnik is an art critic and a regular contributor to The New York Times. He’s the author of Warhol, a definitive biography of the pop artist.

An internet search determined it was also possible to arrange a seance with Andy Warhol, as part of a Los Angeles tourist experience.

I put the seance on hold for later. I wouldn’t dare dispute the medium’s direct line to Warhol — my concern was the psychic might struggle to explain NFTs to Warhol.

Andy Warhol’s legacy is a nod to NFTs

Warhol, by Blake Gopnik

Gopnik’s biography of Warhol seemed to posit that money was a means, but provocation was always Warhol’s end goal. Warhol enjoyed making money to fund all his creative pursuits, but he always sought to be provocative. So, NFTs – which can be both provocative and lucrative – seem like a medium he would’ve embraced. 

For a start, Warhol’s later film and photographic works certainly became increasingly provocative, bordering on pornographic. The Warhol Diaries provide a fascinating insight into pre-woke times and Warhol’s artistic motivations in the 1980s. 

Secondly, “what is art” and whether NFTs are art is not the right question. That’s a minefield. Colborn Bell, founder of the Crypto Museum of Modern Art, tells me — mostly, they’re not. “Out of the gate, a lot of NFTs aren’t art. They are really not.”

A key argument in favor of my pet theory is how Warhol immediately used a new artistic medium whenever available for commercial success.

And his work was also not considered art by much of the establishment — he was forced to embrace that reality. That’s a similar position to NFTs in popular culture today. Acclaimed collections from Fidenza call into question the very concept of art and artists. If a computer produces the work, is it even art? they question.

There are many historical parallels.

Warhol transformed the mundane into art

Warhol was a pioneer in transforming commercial and mundane items like Campbell’s soup cans into art. He made films, produced early music clips, and even had a TV talk show that ran on MTV in the 1980s.

He also produced hundreds of pieces in a well-staffed studio known as “The Factory.”

Shunned by art critics — the Museum of Modern Art in New York refused his free donation of a work called “Shoe” in 1956 — Warhol then realized that portraits of people could be very lucrative. 

Lots of different patrons sat for him, but each portrait might exist as only one or two paintings, according to Gopnik. His biggest editions of the Marilyn Monroe prints were of 200 images, and they were never cheap, explains Gopnik. 

For comparison, while NFTs can be wholly unique one-of-ones, mints typically number 10,000.

Warhol painted political leaders, such as Mao and Lenin, (Che Guevara was attributed to him but was a fake painted by his assistant). And he painted celebrities, such as Elvis, Marylin Monroe and Mick Jagger.

Reigning Queens was a 1985 series of 16 silkscreen portraits.

Clearly, it’s easy to presume that Warhol would love NFTs: easily reproduced mass collections on a theme or a widely recognizable person.

And here’s the kicker: Those images were Warhol’s “f— you” to the establishment. He was saying, My work is commercial and I’m going to sell them. 

Crypto is, to varying degrees, a “big f— you” to the established financial order and the art world. NFTs are a new business model for creators — a speculative one, sure — but a new model for scaling art sales.

Some highly successful NFT businesses are a modern scalable version of older business models. For example, Moonbirds sought to create a proof mechanism, and it’s emerging into a kind of studio for creatives. And Bored Yacht Ape Club is arguably a spin on the country club model. They aim to overcome scale limitations faced by those IRL business models, in which NFTs represent a form of club membership and grant owners free entry to events, for example, or the ability to simply hobnob with other club members by virtue of their shared exclusive golden tickets. 

For Warhol, business was art

“Perhaps Warhol’s art foreshadowed NFTs because he proved that business itself could be an art form.

So, Warhol’s art proved that business could be an art form. Jon Ippolito, professor of new media at the University of Maine, drew the link to NFTs in his blog, writing:

“Good business is the best art,” Warhol claimed. He once insisted that he wanted to sell shares of his company on Wall Street. While Warhol pushed the boundaries of what art is, he also said: “Don’t think about making art, just get it done.”

To an extent, Warhol sought to scale the art industry — and that’s exactly what NFTs do. So, it’s easy to imagine Warhol would enjoy pumping out NFTs on a larger scale than Damien Hirst. 

Read also

Features
Year 1602 revisited: Are DAOs the new corporate paradigm?

Features
Capitalism’s Perestroika Moment: Bitcoin Rises as Economic Centralization Falls

Gopnik disputes this idea. “The Factory was an ironic nickname for his art studio — he only had one to two assistants. He was playing at factory production. Warhol’s output was no more than any other contemporary artist,” Gopnik explains to Magazine.

Gopnik should know, as he is currently curating an exhibition on Warhol’s idea of “business art.” This turn of phrase refers to business as an ironic medium for art making. He says Warhol was simply playing with the idea. He always wanted to be taken seriously as an artist.

NFTs would bore Warhol, thinks Gopnik. “He would find it a tired concept by now and be into something else.” As evidence, Gopnik notes that in 1962, Warhol painted the 32 Campbell’s Soup cans as the first steps of a young pop art movement. By 1965, he said he would never do another painting. 

“Warhol would play with business as an art supply, as a way of pretending to be part of that non-art world of commerce: ‘Just watch me. I am a great artist, I can do whatever I want, I can take art to this other domain.’

NFTs too commercial for Warhol 

While he’s a fan of Warhol, Gopnik is not a big fan of NFTs and wrote in a March 2021 feature in The New York Times that “NFT art simply does not exist.” The art is in flipping the NFT for a profit, he wrote. The way NFTs are bought and sold automatically raises issues over the meaning of “ownership.” He noted that Damien Hirst, one of the first major artists to get into NFTs in 2021, ironically called his NFT release “The Currency.”

But isn’t that the point? NFTs are a cultural business currency. The ability to scale offers artists the ability to meet consumer demands at many price points.

In this experimental phase, there is some emerging artistry in the business models derived from NFTs. Establish a community, create some exclusivity, and the buyers will come. NFTs have transcended crypto as a pop culture movement. In 2021, NFTs became crypto’s mainstream moment. 

Still, Ippolito also believes that NFTs might now be too mainstream for Warhol’s provocations:

“It’s also conceivable that Warhol would be happy to see more people making art in general, and I am, too. But I don’t think he would have touched NFTs himself. I see his ‘business-like’ initiatives as pushing the boundaries of art, not reinforcing a hierarchy.” 

So, if NFTs are not about art but creating an audience for scalable sales, perhaps they are too commercial for Warhol to embrace. “I think most NFTs serve a dual purpose: overtly to support those who make art, and covertly to validate cryptocurrencies,” Argues Ippolito.

NFTs were arguably designed as a crypto onboarding mechanism, even before they exploded to speculative investors in 2021. As I noted when I tried to value NFT clones or “derivative” NFT projects, the art is in the code for the open-source advocates, as well as the curation of the collection. 

Subscribe
The most engaging reads in blockchain. Delivered once a
week.

And NFTs do reinforce business hierarchies. Nike has already made $200 million on NFT sneaker royalties and sales. Warhol likely would not like to be a tool of a corporation, but perhaps Warhol would’ve taken on Crypto.com or Coinbase as a patron sponsor of his art.

“He might be interested in the resistance inherent in cryptocurrencies, as a kind of primitive capitalism,” says Gopnik, who notes that Warhol was very left-wing and anti-elitist. Perhaps he would have been taken with “resistance NFTs” used to fundraise the UkraineDAO then.

Warhol loved to experiment

Regardless of whether business success was secondary to Warhol’s goal of pushing artistic boundaries, Gopnik believes the immutable tech would certainly have fascinated Warhol.

Gopnik notes that as NFTs preserve deeds, not art history and the celebration of art, Warhol might be interested in that part of the transactional side and playing around with the underlying technology.

“I hate guessing what Warhol would do, but NFTs are terribly naïve artistically, so it’s more credible he would be interested in blockchains.

It’s true, most people can’t conceive of a long-term price or value for most NFTs. They’re also so generic in their style, it’s often hard to remember them, so longevity for particular series or mints is not yet assured. But the tokens’ immutability (subject to some tech caveats) is assured. That is, after all, the whole idea behind pushing the boundaries of the art and creative industries through NFTs.

There are hints that Warhol may have loved that blockchains could, in theory, render proof of ownership for eternity. Warhol famously said, “The idea is not to live forever; it is to create something that will.” 

Warhol was always a futurist looking for the next new medium.

Andy Warhol, Untitled (Self-Portrait) minted as an NFT in 2021. Source: ©The Andy Warhol Foundation.

Warhol and computer-generated art

In May 2021, the Warhol Foundation auctioned some undiscovered computer-based Warhol originals as NFTs — but not without controversy. The archivist who found the file was outraged as they had “recreated original files.”

Professor Levin, who worked on creating the collection, did not consider them “original works” by Warhol but were more of a tribute to his experiments. According to Levin, Warhol had been given the second such Amiga computer in existence.

The story of Warhol and the early computer is curious, though. Alana Kushnir, an art lawyer and curator, tells Magazine that the first mover for a medium is part of the artistry.

“Warhol using an early personal computer to create digital artworks — this is an important historical precursor to artists working with NFTs. Warhol had a connection to NFTs without knowing it.

She suggests Warhol’s “overtly commercial focus was way ahead of its time,” and he was also happy to form brand partnerships in the 1980s. “Art and commerce can intersect in interesting ways, and Warhol knew that. Think about his screen prints of dollar signs from the early 80s – he combined wealth and art in a light-hearted, simplistic way – to attract the masses.”

Kushnir explains, “Some artists have a good sense of what’s to come and can tune their art practice to address that.” Warhol did, for example, have a prophecy that in the future, everyone would be famous for 15 minutes. That came true in the case of reality TV and became even briefer with the advent of social media.

Yet she also posits that where the “Warhol would love NFTs argument” fails is that “good artists, like Warhol, are social commentators — they pull back the curtains on the inner workings of contemporary society. Most NFTs don’t bother to do that.”

That’s three strikes against my theory from the experts. And there’s a final problem in this theoretical discussion…

Art still needs a connection to the artist…

Returning to the “business is art” argument, it may be true that crypto has created a new experimental mechanism for commercializing and trading art, including new royalty mechanisms. Warhol wanted to IPO his company, so he may have loved the idea of artists being paid fractional royalties. 

But art needs an identifiable artist, and that doesn’t always exist with generative art like CryptoPunks or the works of Fidenza.

Ippolito doubts any artistic merit of “code art.” “The fundamental difference between pop art and an ERC-721 smart contract is the connection to the artist,” he says.

“It’s tempting to say algorithmically generated PFP-style images can’t have personality, but I do believe the personalities of many artists who use code show up in their work.”

It’s only fitting that Warhol biographer Gopnik gets the last word:

“Warhol might be interested in the most ridiculous NFTs — but only once they crashed to $0.99. He liked to undermine the notion of valuable art. He loved anything that was problematic and troublesome. NFTs are that: a problem for the art world and the financial world and the journalistic world.

But on the other hand, Warhol’s work required tremendous novelty and subtlety. 

“The thing most people don’t understand is that he was completely dedicated to the notion of Avant-Garde art. What matters about Warhol is his exceptional complexity and ambiguity. And that makes it very hard to imagine that he would like NFTs now.”

“For me, NFTs, for now, are like trading cards, but I’m waiting for an NFT collection so specific to NFTs that it blows my socks off.” 

And maybe that’s the point. Who knows what Warhol could have done with NFTs?

[embedded content]

Read also

Features
Crypto Indexers Scramble to Win Over Hesitant Investors

Features
China’s Digital Yuan Is an Economic Cyberweapon, and the US Is Disarming

Max Parasol
Max Parasol is a RMIT Blockchain Innovation Hub researcher. He has worked as a lawyer, in private equity and was part of an early-stage crypto start up that was overly ambitious.

Decentralized finance is beginning to embrace a hot new phrase: “real yield.” It refers to DeFi projects that survive purely on distributing the actual revenue they generate rather than incentivizing stakeholders by handing out dilutionary free tokens.

Where does this real yield come from? Are “fees” really a sustainable model for growth at this early stage?

It depends on who you ask. 

The DeFi ponzinomics problem is our natural starting point.

Ponzi farming

DeFi started to arrive as a concept in 2018, and 2020’s “DeFi summer” saw market entrants — DeGens — piling headfirst into DeFi to early mind-blowing returns of 1,000% a year for staking or using a protocol. Many attributed the real explosion of interest in DeFi to when Compound launched the COMP token to reward users for providing liquidity. 

But these liquidity mining models were flawed because they were based on excessive emissions of protocols’ native tokens rather than sharing organic protocol profits.

Liquidity mining resulted in unsustainable growth, and when yields diminished, token prices dropped. Depleting DAO treasuries to supply rewards programs — or simply minting more and more tokens — for new joiners looked like a Ponzi scheme. Known as “yield farming” to some, others preferred to call it “ponzinomics.”

Yield farming was behind “DeFi summer.” Source: Cointelegraph

While recognizing these returns were unsustainable, many sophisticated investors became enthralled with staking (locking up tokens for rewards). One VC told me they paid for their lifestyle by staking tokens during 2020–2021 — even knowing it was akin to a Ponzi scheme about to collapse. 

The dangers of unsustainable yields were seen in mid-2022, when the DeFi ecosystem and much of the rest of crypto were gutted in a handful of days. Terra’s DeFi ecosystem collapsed with grave contagion effects. Its founder, Do Kwon, is wanted by South Korean authorities and is subject to an Interpol “red notice” but says he is “not on the run.” High-profile hedge fund Three Arrows Capital (3AC), which heavily invested in Terra, was liquidated in June 2022.

The reality is that “returns based on marketing dollars are fake. It’s like the Dotcom boom phase of paying customers to buy a product,” says Karl Jacob, co-founder of Homecoin.finance of Bacon Protocol — a stablecoin backed by United States real estate. 

“20% yield – how is that possible? Marketing spend or digging into assets are the only way to explain those returns. This is the definition of a Ponzi scheme. For an investor, high yield indicates a tremendous amount of risk.

Henrik Andersson, chief investment officer of Apollo Capital, notes the yield in Terra wasn’t actually coming from token emissions. “I wouldn’t call Terra a Ponzi scheme even though the yield wasn’t sustainable; it was essentially ‘marketing money,’” he says. 

Real yield enters the chat

It’s easy to be cynical, then, when the phrase “real yield” started to emerge to popular applause recently. Bankless analyst Ben Giove wrote recently, “DeFi isn’t dead. There are real, organic yields out there,” in a piece explaining that real yields are “opportunities for risk-tolerant DeFi users to generate yield at above market-rates through protocols such as GMX, Hop, Maple and Goldfinch. With the bulk of their yield not coming from token emissions, it is also likely that these protocols will be able to sustain their higher returns for the foreseeable future.”

“Real yield is a hashtag reaction to Terra LUNA’s collapse, but that means people agree more on what it isn’t than on what it actually is,” argues Mark Lurie, founder of Shipyard Software, which operates a retail-focused DEX, Clipper.exchange.

“I’ve been on the real yield train for a year and a half — and I’m glad someone is paying attention.” He says there are a few potential definitions, “but sustainable returns on capital is one that actually makes sense.”

“An example of real yield is interest on a loan, like Compound Finance.” Another example is “fees charged on transactions and returned to capital providers — e.g., gas fees in proof-of-stake layer 1s, trading fees in DEX protocols.”

Real yield is all about sustainable returns on capital. Source: Pexels

Manufactured narratives

Jack Chong, who is building Frigg.eco to bring financing to renewable energy projects, says there are a lot of manufactured narratives in the crypto space. Real yield is one of them, he posits.

“The meaning of real yield depends on which corner of crypto you sit in, and there’s two variants,” says Chong, an Oxford graduate and Hong Kong native. “One definition suggests that real yield is a protocol that has cash flow. It is a digital native cash flow denominated in ETH or crypto.” 

In other words, it’s a business model that has revenue.

“The exact wording of many threads on Twitter is that real yield is staking for cash flows. The distinction is the source of that yield — a lot of crypto ecosystems are self-reflexive,” Chong argues, referring to the digital money circulating and creating gains for investors without coming from actual revenue, like Terra.

“Linguistically, real yield doesn’t have to be about trading protocols,” he continues. “The other meaning is yield from real world assets.” An example is a rental return from a tokenized piece of real estate, such as a fractionalized city car space split among investors.

Chong, who founded a biotech startup and once studied Arabic in Jordan with diplomacy in his sights, has a mission to deploy crypto for productive use. “Any North Star for any financial system should be to deploy capital and make a profit. The whole “real yield” story is just common sense in TradFi, he points out.Real yield is of course linguistically disparaging of all that came before it as “fake yield.” So, what are these yields?

DeFi will eat TradFi. The key is via Real World Assets (RWA).But the industry lacks a rigorous case….So we wrote a 70-page primer to walk through our idea maze ?Here’s a sketch of the report so that you can skip to the section you like ? pic.twitter.com/WnrhXA8aKM— jackchong.eth (@jackchong_jc) September 27, 2022

Real yield: Interest and fees

Real yield can involve lending and borrowing models in which higher risk equates to higher interest rates for borrowers and, consequently, higher yields for lenders. That’s the model of the under-collateralized lending platform and real yield pin-up boy Maple Protocol. 

Maple enables institutions, such as market makers or VCs, to take out under-collateralized loans via isolated lending pools. A “pool delegate” assesses the risk of a borrower’s creditworthiness. To date, Maple has originated $1.8 billion in loans and recently launched a $300-million lending pool for Bitcoin mining firms.

Interest from loans (or usury) is an obvious but lucrative business model. Banks mostly make money from loans. 

Holly Satoshi! $sUSD rewards this week from staking at @synthetix_io is huge!Usually $sUSD value vs. $SNX value is +- 30%, but now it is reaching 68%!!The future of staking is getting closer. Almost time to switch off the brrrrrr. ⚔️— CT ⚔️ ?✨ (@0xToit) September 21, 2022

One of the most obvious sources of real yield is providing tokenholders with a slice of the revenue generated by fees imposed on users of the platform. In other words, there is an actual product or service earning revenue.

Jacob, an OG dating back to Web1, argues that proof-of-work staking returns on Ethereum now incorporate real yield.

“ETH could be considered a real yield. With Eth1, most money flowed to miners – proof-of-work (or mining transactions to prove their validity) was a kind of real yield already. Miners were getting real yield. Now stakers are able to earn yield from network transactions. Transactions happen often, and a lot of more people get paid. For every transaction, ETH stakers make money.

In other words, transactional revenue is a reward for ecosystem building. 

Others are joining the real yield trend or emphasizing that part of their protocol.

Synthetix is a highly successful decentralized protocol for trading synthetic assets and derivatives. Tokens on that platform are actually synthetic assets designed as a tokenized representation of investment positions.

It’s too complicated to explain here, but the elevator pitch is that users stake the native token SNX to mint the stablecoin SUSD, which underpins all the liquidity and other tokens on the platform. Stakers are handsomely rewarded with token emissions — sometimes over 100% APY — as well as a cut of the SUSD fees paid by traders to use the platform. 

Revenue for various protocols. Source: Token Terminal

All of a sudden this year, SUSD fee revenue went through the roof when 1inch and Curve realized they could use Synthetix’s synthetic assets for no slippage trading between things like BTC and ETH.

As a result, Synthetix is now considering a proposal by founder Kain Warwick to stop inflationary rewards and move to rewarding stakers based entirely on real trading fees.

That’s the very definition of real yield. It will be interesting to see if their real revenue is enough to incentivize stakers on the fairly risky and complicated platform.But how does this all succeed in a bear market?

The most profitable narrative in the bear market:”Real Yield.” But what is it and how does it work?Here’s a Breakdown and 7 Protocols that Fit the Criteria: (including a few hidden gems)— Edgy – The DeFi Edge ?️ (@thedefiedge) August 12, 2022

Impermanent loss and other risks

Another way fees might be earned for providing liquidity is to assist in cross-blockchain liquidity. Liquidity providers risk facing exposure to the price volatility of the underlying asset they are providing liquidity for. Impermanent loss happens when the price of your deposited assets changes from when you deposited those assets. This means less dollar value at the time of withdrawal than when deposited. So, your rewards or headline real yield from staking liquidity may be offset by the losses upon withdrawal. 

Lurie says:

“Ponzi yields may be defined as the unsustainable granting of speculative tokens. But yields from protocol transaction fees can also be fake if the underlying economic model is unsustainable. For example, liquidity providers to SushiSwap earn fees from transactions, but typically lose more to ‘impermanent loss’ than they make from fees, which means they are losing money.

The important thing, obviously, is income minus expenses, says Lurie. “The biggest problem in DeFi is that actual gains are complex to measure because of the concept of impermanent loss,” Lurie tells Magazine. This is the greatest trick in DeFi, he says. 

“Protocols that are fundamentally unsustainable make themselves seem profitable by relabeling revenue from fees as ‘yield’ and relabeling loss in principal as ‘impermanent loss.’

Naturally, they advertise revenue (which can only be positive) while claiming that losses are “impermanent” and/or hard to measure. At the end of the day, real yield should mean profits to capital providers. Focusing on revenue without expenses is just the Ponzi principle in another form.

Questions to Ask:• Where is the yield coming from?• How much revenue does the protocol generate?• What is the native token supply and emissions?• What tokens are they paying the shared revenue in?• What is the overall base network traction?— Edgy – The DeFi Edge ?️ (@thedefiedge) August 12, 2022

Traditional investors like real yield

Real yield has emerged due to current investment cycles and market conditions. Chong points out, “Real yield more closely reflects TradFi and has a lot to do with the cycle of market participants.”

“During the DeFi summer, hedge funds acted as speculative vultures. Now institutional investors like Goldman Sachs are looking for new directions in crypto on what will survive the bear market.” Others such as Morgan Stanley, Citigroup and JP Morgan are all watching closely and writing their own reports on crypto.

Apollo’s Andersson notes that real yield means that while there were “historically wide question marks around the value of crypto assets, since 2020, protocols that generate revenue as on-chain cash flow are not that different from equities in that sense.”

He defines real yield as “on-chain derivatives protocols with profit to earnings multiples that make sense, without incentives like liquidity mining.”

Traditional investors like real yield because it enables them to use traditional metrics like price-to-earnings ratio (P/E ratio) and discounted cash flow (DCF) to value whether a token is cheap or expensive and whether it’s worth investing in. 

Traditional investors like DeFi projects and tokens with revenue. Source: Pexels

The P/E ratio is a stock (or token) price divided by the company’s earnings per share for a designated period like the past 12 months. DCF refers to a common valuation metric that estimates the value of an investment based on its expected future cash flows.

The transparency of blockchain revenue also provides a stream of data to constantly update decisions thanks to protocols like Token Terminal and Crypto Fees. “In crypto, you don’t have to wait for a quarterly statement like stocks,” says Andersson. Revenue minus or divided by the newly minted token for incentives can generate cleaner numbers, he suggests. Real yield is revenue without incentivizing volume, such as in the cases of Uniswap and GMX.

Subscribe
The most engaging reads in blockchain. Delivered once a
week.

Yet Andersson cautions investors that “in crypto, income and revenue can be very similar, as the cost base looks very different than for a traditional company. This makes yield for crypto protocols highly attractive in comparison.” But cost bases and margins can be higher in crypto — as there is often an initial distribution of tokens when a project launches. He asks:

“‘What is the protocol’s revenue compared to the value of the tokens minted?’ is the question.

Will the real yield trend stay?

The real yield trend shows that DeFi is maturing and beginning to act like genuine businesses. It’s also growing in popularity. 

“One way to validate a DeFi protocol’s use case can be to assess if it has been ‘forked’ by other founders looking to leverage the original code and design,” says VC analyst Angliss. 

“In this case, protocols such as Gains Network, Mycelium.xyz and MadMeX are all replicating GMX, by offering real yields to stakers in the form of fees earned via swaps and trading on a decentralized derivatives trading platform.”

Max Parasol
Max Parasol is a RMIT Blockchain Innovation Hub researcher. He has worked as a lawyer, in private equity and was part of an early-stage crypto start up that was overly ambitious.