The opportunity to innovate has never been more within arm’s length, and humanity is taking advantage of this privilege to make life-changing products. Tech and product head of gaming at Solana, Matt Sorg, and his team have built scalable products that added great value to millions of users. Matt saw a chance to utilize the practical capabilities at each stage of the tech stack and ended up improving the quality of life of end-users. Matt joins our hosts, Jeff Kelley, Eathan Janney, and Josh Kriger, to discuss ways you can integrate once and never worry about scaling again. Listen in as Matt shares how Solana ensures composability between ecosystem projects by maintaining a single global state as the network scales.
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Matt Sorg Of Solana – The World’s Most Performant Global State Machine, Plus: Gabe Frank Of Arcade – A Sophisticated DeFi Lending Infrastructure For NFTs
This episode features Matt Sorg, Tech and Product Head of Gaming at Solana, the high-performance blockchain with smart contract functionality that provides faster transaction times and cheaper fees than Ethereum. After a long history in gaming in 2017, Matt and a few colleagues at Riot started Korro Inc., a gaming NFT marketplace and launcher.
Through that experience, Matt recognized the importance of scaling blockchain solutions. Around May of 2021, Matt started talking to Raj and Anatoly, Cofounders of Solana with the goal of collaborating on what a successful games ecosystem strategy would look like. After a thorough process of vetting the various blockchain scaling options, Matt joined the Solana team in 2021 to lead the technical and product strategies around games.
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Matt, it is great to have you here.
It is good to be here. I am excited about all of this.
It is super cool to have you. This show focused on Solana has been a long time coming. There are some NFT aficionados out there that live and breathe the Solana ecosystem and we need to dive in there but to start things off, for our readers that are less familiar, could you share the Solana origin story and how it serves the community and particular around NFTs?
I believe the official origin story has to do with Anatoly having a cup of coffee and it dawned on him. He has this long history with Qualcomm and a bunch of other things around synching cellphone services around cellphone towers and it dawned on him one day how you could synch blockchain activity. The shared clock problem is a very big one in blockchain so figuring out how to do that in a decentralized was the start of it, then there is a bunch of other lore around an underwater hockey league where half our cofounders came from and a bunch of things around that but long story short, the idea is to make a high-performance blockchain.
The proof of history is the branded scalable solution but there are about eight things that we are taking around bottlenecks and various different places. These are not theoretical limits that get posted. We can scale with hardware arbitrarily so the theoretical limit is not just 4,000 transactions per second. We are heading even upwards of 150,000 on test nets and we have never had a full block at live. That is where we are and what we offer.
How do you fit into this story? I hear you guys have a fun and pretty large office now in Northern California.
We are a very distributed team all around the world. The cool thing about how our office has worked out is we have pivoted them to being our in-person offices to anybody can work there, including our ecosystem teams. Phantom works there. Maybe people do not necessarily realize this but we do not own a lot of the companies that are associated with Solana. They are ecosystem teams.
There are about ten teams. Serum and Saber Network has been in and out of there. A bunch of protocols go in and work in the same office right next to myself and other people whenever they are there but they do not have to be in that shared workspace for the ecosystems. It is very Web 3.0 and it is pretty awesome.
Our core competency is making this very high-performing blockchain and building on top of that, there are primitives, the NFT solutions and other things like that. My role is making sure that those primitives are meeting the needs of various types of verticals, like the NFT media, how to fix games, doing stuff with DeFi payments, making sure that everybody is set up for success, meaning the people building on top of Solana and then communicating with our core engineering what are the next steps on how we evolve to meet the needs of the next evolution of how all this stuff fits together.
We heard nonstop about Solana long before it became mainstream over the last couple of years from Justin Wu and other people that were banging on the door constantly like, “Check Solana out. You got to understand what it is bringing to the table,” and you guys have continued to deliver on your promises, which is so hard to do in the space. It is very cool to live up to those high expectations and get started in the grand scheme of things.
People do not realize this but we have only been minting NFTs for a while now. The ecosystem has minted around 8 million and it is just accelerating.
It is bananas. We are all about NFTS over here. We always like to ask folks this. What was your first exposure to NFTs? Was it an immediate thing where you were like, “There is something here,” or was it a slower process for you?
For many people, games are an escape from their everyday life. Click To Tweet
My first exposure was CryptoKitties. I would not say it was immediate until I started looking at the code and understanding there is this shared data that anybody can build on top of them. The moment that it dawned on me was when people were making the hats. It was the silliest thing. There was this game on Steam, Team Fortress, where you put a hat on it and makes it fun. They started doing it on CryptoKitties and you did not need CryptoKitties’ approval to do this thing. Dapper Labs did not care because they were adding value to their CryptoKitties.
That is when it clicked. I was like, “You can have all those people building on top of your stuff adding functionality and you are happy about that. It fixes a lot of things in games.” Now, if you do that in games with the mods and other things, those are toxic to the original developer because they do not see any of that value. They only get the original purchase but if it is a free-to-play game, that can be a very toxic environment. The hats were my a-ha moment.
That is interesting. It is the little triggers along the way. For a lot of people in this space now, CryptoKitties was the initial thing but a lot of people didn’t cross that bridge so it is always interesting to hear about. That is cool.
One of the outstanding moments for me with Solana and NFTs was at NFT NYC. I was wandering around in the evening, got separated from the rest of our crew and hung out at a nice hotel bar where, of course, a bunch of crypto people was there because of the convention. I met a few people who were jazzed about Solana. They were very connected to this brand if you want to call it that or the ethos. I felt a strong community spirit. Is Sup Ducks on Solana? It was a duck-related thing.
There are definitely some ducks but I do not know the exact name.
There were these two guys who met because of this NFT project on Solana and they were both excited about it. I am sure the community spirit around Solana is there in different ways. It is almost like a grassroots thing. I want to know what do you think are the trade-offs when you think of Solana and you compare it to other chain options both inside and out of NFTs. I am sure we could ask you that.
I agree with you on the community aspect. It is like what I was describing earlier where anybody is in and out of our ecosystem. They can come in and out of our offices and work together. To me, outside of what lives in the consumer-facing part, the company has fascinating developments going on where everybody has the shared data and is building on that.
There is this composability because of that that anybody is financially incentivized to find the gap in the ecosystem and work with other people, which is drastically different than a Web 2.0 company where you have some C-Suite or overlord saying, “You build this.” Maybe there is some competition but you fit within these much-defined parameters where in Web 3.0, everybody is financially incentivized to find their place. That is pretty awesome and universal.
For Solana, the reason why this is relevant is that everybody is trying to scale. Even their team is trying to scale to meet the needs but Solana is the only one who is doing it in a shared state so anybody who mints on Solana or develops on Solana can use any programs from anybody else’s developing. If somebody comes up with some cool liquidity lending protocol, betting protocol or anything like that, anybody on the whole ecosystem can use it.
You do not have to figure out how to copy and paste it to yours, which matters for liquidity reasons because if that protocol requires there needs to be some sort of liquidity pool attached to it, how will you bridge the right amount over? You start running into a lot of issues when you start doing that, especially in terms of the utility of each of the NFTs.
Also, the way that our consensus mechanism works, it has a lot less forking. It is technical but for the user point of view, it is times finale. It feels very much like Web 2.0 with how quickly you can buy an NFT and have it come to your wallet. There is less of that terror of the spinny thing, having the network confirm it and all that other stuff. It happened so quickly in the throughput.
Solana: Working in Web3 gives you more clarity on what your incentives are and where you fit into that ecosystem.
Part of the reason why that can be so quick is we are the only chain that I know of, at least, that does parallel competition on-chain so if people are buying stuff, trading stuff, doing voting on things and they are not accessing the same memory to do so, those could be happening in parallel on Solana on different threads. That is how we scale with compute relative to other chains that are inherently single-threaded because they do not have as tight of a data model as we do.
The trade-off with that is the data model is slightly more complex. It is a much lower level language because you are having to program which allocations are where and do some serializations and deserializations. It is a bunch of hash tables. If you have to do it on-chain programming, which a lot of times you do not have to do, by the way and we can get into that if you want to, the execution is separated from the data so if something is executable, you do not have to redeploy.
In most NFTs, you do not have to copy and paste the core programming as you do on OpenZeppelin in the EVM world. That is a positive but the negative is if you do have to do some custom logic, you are managing more things. It is like the difference between maybe C++ and C whereas Solana is more like that lower-level language
Between us and the other scalable solutions that are doing shards, you have a little bit more configuration options on your specific shards. If you wanted to sacrifice maybe some decentralization for more efficient costs, you can. Solana is very cheap in terms of transactions but in order for all of this fast memory management stuff, the rent is going to be a little bit cheaper than if you are managing only 40 nodes and a private network.
You can define some of those trade-offs in your sub-net or your sidechain. It depends on how much decentralization you want and how much do you want to be in the shared state with everything else. That is the main at that cost but the competition model is so efficient that we are even cheaper than sidechains. It is just the way it works.
Thanks for that. It is a compelling case, for sure. I had to take a moment here and note for your pleasure, Ethan. I am sure there are several duck-related projects.
Besides the proliferation of duck projects, which I do not think is necessarily true in traditional gaming, there might be 1 or 2 duck games out there but there is a lot of duck stuff going on Solana. There are a lot of fun concepts, projects and ways of giving gamers more joy. When you look at that spectrum of what is out there, how do you feel the perception of blockchain gaming is shifting and how does that influence your work at Solana? There has been a lot of different perspectives on blockchain gaming and how serious the traditional gaming industry is taking. I am assuming you can share your perspective.
There are a lot of avenues that we could take this conversation. There are some that are well-documented on the number of scams and how early we are but there is another one that I want to talk about. It is a little more conceptual that you have touched on in your opening, which is games for a lot of people are an escape from everyday life and there is this worry that the minute you start adding real-life exposure to that then it becomes less of a game. Things necessarily become a job the moment there is any sort of capital or monetization in there. That is a binary thing. There is nothing that the evolution of blockchain or any chain will happen that will change that fact once that goes in.
That one is interesting because it is true. I do not think all games will necessarily need the same type of NFT integrations. Some of this is a battle of pay-to-win versus different types of free-to-play. It could also be pay-to-win versus vanity content but even the vanity content is also a walled garden. You pay some money and then you get skin back and you can’t trade it. Some people prefer that.
I know that is a very foreign concept for a lot of people reading. They are like, “Why would people not want to own that skin that they got?” It is this entry of the normal life of, “I do not want to become a marketplace when I enter a game. I want this walled gardening experience where I want to consume when I enter this. I do not want to enter a movie experience where I have to make some decisions around that.”
Part of this is a bit of a difference in perspective around the way the marketplace is and how we interact with our stuff. If you go up an income bracket, wealthy people very rarely, even for entertainment stuff, spend a significant amount or percentage of their money on something that can’t resell, potentially even for more money. There is this cultural difference. Rich people spend it on houses, boats, cars and all these things that they can resell pretty easily where the lower levels are used to not doing that.
The one-off tickets or things that are so cheap that they do not have a resell value even if they wanted to resell it. Part of this is maybe switching the narrative a little bit where once they start seeing that there is value in being able to resell some of the stuff that you once owned then you can start seeing that it is not as toxic as you may think it is, especially once the hype goes down.
Now, everything is new and hyped. Everything is so crazy but I can understand there is some skepticism around the money. Let’s say 5 or 10 years from now, you lower the difference between a rich person owning something and a poor person owning something. That gap is not as huge and part of that is because you lowered the friction at the lowest level from being able to get that back and that ownership means something a lot more for your time. Even if you put it up on a marketplace, if anybody buys it, they buy it. You can have a wider distribution of people who can get returns on their time.
It is a pretty foreign concept now because if I buy a $100 loan lawnmower, I am not realistically reselling that very much but this allows you to do that. That is a powerful concept. Part of it is seeing that being done successfully and normalizing that in a way that is healthy. The way it affects our strategy at Solana Labs or the first major things that will take off, especially in the West, are user-generated content because people are pretty comfortable giving money to creators.
If you are giving it to a creator, they would not have created that content anyways unless you paid them. It would have been hard for them to create a whole company for Roblox, for instance. A lot of the big creators in that have to make these big companies do all this stuff but if you put it on the blockchain, you can just have people collaborate and everybody knows how much royalty they are going to get off that content. That concept has affected our strategy a lot.
It is pretty helpful to understand that context. A lot of folks do not think about all those things.
A lot of it is an outgrowth of how you are structured as an organization. I am curious. I am going to go back a little bit for a moment. You have a lot of folks with legitimate Web 2.0 experience. They are in that executive realm with big companies and the structure of those companies, the processes and the different positions that people have in those companies so I am thinking that for folks that are looking to build something sustainable, scalable and repeatable in this space, talk for a second about your organizational structure around things like the boring admin stuff. How is this structured? Do you have a regular HR department? How do you handle things like vacation, employment offers, insurance and licensing? Is there this business layer that exists even in a company that is so Web 3.0 and future-oriented?
Im a two-time founder. I have a little bit of a hard time working for many layers of the stuff above me that does not have very much clarity. Working in Web 3.0, you have a lot more clarity on what your incentives are and where you fit into that. Solana Labs is not going to become a big organization at any scale.
If one part of it gets too large, we are going to set it off in its own entity once it has those clear goals where it is going to become its own entity. We have done this with Metaplex, for example, which is now a separate company that comes up with NFT standards and other things in this mix like plug and play or white-labeled solutions to making your own marketplaces. That is awesome. That never happens. Almost the reverse happens in big Web 2.0 land where there are all these acquisitions.
You still see acquisitions for sure but when you can maintain that lower size, a lot of the stuff that you are talking about, it does not need to exist as much. The incentives and attribution are way clearer. It is not perfect. It is not like you get away from the fact that there is going to be some lack of clarity on who did what to get the actual outcome but you are still much smaller so it is way easier for you to understand which part of the organization came to what parts of the outcome. You do not need an entire VP level looking around to make sure that the allocations are in the exact right spots as much.
It is like that Rule of 150. As you keep these smaller groups, you can be way more nimble and you can do way more per person because you do not have these layers of redundancy or a bunch of people that do not even necessarily have a path. As I was saying earlier, all the sub-teams that get created that are now companies instead of sub-teams have the incentive to figure it out. You do not have to be an HR person or some C-Suite telling them, “You need to iterate.” They do it or they do not. What is cool about it is this is so new that even the failure cost means that you usually have tons of opportunities to go to one of the other companies that are doing well. It is super healthy.
Solana: With smaller groups, you can do way more per person because you don’t have these layers of redundancy or a bunch of people that don’t even necessarily have a path.
Let me ask you specifically, though. If somebody wants to take a day off is there a vacation policy? Is somebody enforcing the vacation policy very specifically?
I am not going to say all Web 3.0 companies have open vacation policies but everything is so flexible. There are weeks where I get up in the morning and work the full week, especially we are in the middle of this hacker month. This month of March 2022, I work a lot but then, if I want to take one day off, I do not even ask anybody. As long as I manage my schedule, everybody trusts me. I think that is awesome. That is the work style that gets me going because I can optimize this when I have certain inspiration to work.
Another aspect of it that is also compelling is this drive toward sustainable blockchain development. Solana is right there at the leading edge of this. I am curious as to the new-term goals and long-term goals Solana has around continuing that drive towards sustainability.
Do you mean in terms of the environment or being able to have the economic incentives to develop even that maturity?
Let’s say both because I think both are relevant.
The first one is pretty easy. If blockchain started off as proof of stake, they would not have had this association with the environmental impacts. The transaction on Solana is like a Google Search is the way we do it but we are using more energy in this call than the blockchain itself running transactions. We also offset it so we do care. This is one of the major reasons why I came to Solana. It is looking at how we will scale to the quantities that it will need to have Web 2.0 type of impact and that competition with NASDAQ, gaming solutions and other things like that.
We are coming up with an actual validator. Our nodes are being economically incentivized to pay for carbon offsets that build directly into the protocol. We are playing around with some stuff like that and collecting a lot of feedback from validators, which is an interesting thing. Once you start having this pool of resources for people who pay for carbon offsets then you can do it either through donations or some small percentage that people pay that is voted on by the ecosystem. You can offset the chain pretty easily but it is not much money either. You are talking five figures a year. It is not necessarily because we run so efficiently.
The other topic is a very interesting one. You could argue what is the economic incentive for Bitcoin developers to develop now? They would need a donation. That is one is also an interesting one. It is similar to the concept I said where maybe the community would vote on a percentage of validator income that would go towards Solana Labs.
There is also potential for staking rewards to other nonprofits where you would take it donation-based. The sky is the limit. We can also potentially come to service in organizations like Red Hat because we are the main contributors to the chain then we would have some ability to also have a core competency to get paid for managed services.
That one is a little sexier to us because as I was saying earlier, we see some pretty realistic paths to each of the core systems that make up Solana to break off, be separate entities over time, even have some redundancy in those entities and then have attribution models that go to that and get paid out through a DAO. It seems pretty realistic then they would have their deliverables that they would deliver off to and get paid through the DAO. It is very similar to a bug bounty where now, they would just be deliverable bounties.
It is such a critical part of the whole thing to keep it going, evolving and developing as things change over time. If those incentives are misaligned then where does it go? Nowhere.
One of the things we see with blockchains also is it is not sustainable if you are internal. You got to build partnerships. You have got to help other people build the ecosystem with you. That is why you see these various chains helping to support the NFT projects, for example, which want to build on them. On that note, are there any partnerships you guys are excited about? Can you tell us what is going on and if there are things you want to announce and share? What is up with the partnerships department?
There are awesome things happening. One that came up that we are excited about is Angelic announced their fundraising around and Solana Adventure is part of it. They are building on Solana. It is a game to get AAA quality tactics. This game is amazing. I playtested it a lot and I still play it. It has got a lot of replayability because they have a bunch of challenges within it, like using which units because some of them are more powerful than other, and they have a bunch of things around scores.
Also, you can do things like put achievements on-chain and get different units. That one is cool. It is an AAA studio out of Turkey. There is also a bunch of other ones. I am trying to think about what I can talk about. There is so much going on that it is hard to remember. Related to the economic incentive of having awesome mobilities, another good example is a Fractal coming on to Solana.
Justin Kan, the former Cofounder of Twitch, chose a chain to launch on and it was Solano. Part of that is because we do not compete with that market. They are doing a lot of cool things that are gamer-focused marketplace stuff and we are happy to be in a shared slack and help them contribute. They are a second separate entity doing a lot of cool things in this space. We are also excited about the cross-platform future. They will eventually take other games and other ecosystems because they are a platform. Shaq has an NFT that dropped and that was pretty funny. He is awesome.
That is a good segue to a question I have for you, which is looking ahead. What should we expect from the world of Solana in terms of minting and NFTs for the rest of 2022?
My sense of this is that studios that are very interested in the user experience, making the best game and monetization as part of that are choosing Solana so it is a lot of people who are interested in performance, building a great game and not having any friction anywhere else. A lot of people and seasoned game makers are building on Solana because they want to be at a place where they can concentrate on the game and they do not have to battle with the underlying technologies that they are using in order to provide a good user experience. Solana gives you that out of the box. We have a lot of things that are just plug-and-play, especially in terms of minting NFTs. That is why 8 million have been minted because a lot of people can mint. It is not exactly hard.
There are some very big and exciting games. You will hear some announcements going on anything from hardcore MMOs, battle royales and tight economic games all the way to nice, fun experiences that you can mint your achievements and other aspects of it. That is what gets me excited. It is the fact that there is a lot of diversity coming on to Solana. It is a base level of data and computation so it does not lend itself to one versus the other more than anything of that. It is just a great place to mint NFTs.
I am curious. Is there an equivalent version of you in other divisions of Solana? I am thinking about the future of Solana when it applies to regenerative agriculture, B2B cases and maybe some of the other use cases like music and whatnot. Do you have peers thinking of all these other use cases for Solana?
Gaming touches everythin because it is a bit entertainment, content and it is also very high tech with audio and all of these other things. That is the beauty of gaming. That is why gaming is starting to lose its term.
They all report to you.
Sort of. We have a cross-discipline tech team and I run that but I concentrate on games because our main goal is to get 1 billion users having a great time self-signing and owning their wallets’ self-custody on Solana. Gaming is one of the fastest ways of getting us there. It is not management. It is very different than Web 3.0. I run the collaboration and make sure that cross disciplines and we are communicating with each other so that we can scale a lot of the things that are happening and then compute.
Another way of asking is is there something that is a little bit outside the traditional definition of gaming happening this 2022 that you are excited about in the B2B space or the entertainment space maybe that does not fit the overall context of the show as we have discussed the gaming use case of Solana?
Solano Pay is a very interesting case because it allows you to do normal point of sale with receipts and itemize all that stuff in a transaction. It is maybe not as sexy with what you are asking but one of the cool things that we are thinking about is a lot of this combined collaboration. Built into our actual protocol, you can have multiple royalty givers but one of the things that are the next layer on top of that is how do you combine people who weren’t necessarily part of the original asset or the original PFP, for example and they can still contribute on the original asset and people say, “Sign off,” and they say, “Yes. This is part of my collection,” so instead of one PFP, maybe you have a folder of assets that all fit that PFP so you have audio attached to it. You have an animation, 3D assets and various qualities of 3D assets attached to it.
Solana: Blockchains are not sustainable if you’re just an internal. You have to build partnerships and help other people build the ecosystem with you.
That is when you start thinking about its interoperability with a bunch of stuff. You could have the roadblocks version of your Bored Ape. You do not necessarily have to make it either. Somebody else could make it for you. As the owner of the Bored Ape, you or the certifying entity which says, “Yes, this is part of the collection,” you have options for doing that. I think that is related because the sky is the limit with that. Who knows what people are going to be creating within that paradigm? It is going to be audio, holographic fun images or a whole cinematic.
Outside of the Solana Universe, where do you feel like there are points of inspiration for you? What gets you jazz on your day-to-day?
I am a technologist so the things that get me excited are various things that are happening in machine learning. I came from Unity where I headed up a team that was doing reinforcement learning. We were teaching things how to play games. Part of the reason why I went to blockchain is this decentralized way of getting knowledge. That can help reinforcement learning and a lot of ways. It gets technical but that is one place that inspires me. How do you get more information and enable more things to provide information?
Honestly, I do not know if it is the inspiration for what I do day-to-day but things around gene editing and CRISPR, are potentially going to fundamentally change the way that we, as humans, live. It is not that we should be generating our own DNA yet. That is pretty scary because once it is in there, it is hard to get out there but in terms of therapies, the way we grow our crops and other things like that are some fantastic things.
It does not exactly relate to what I do day-to-day but the more things that you can enable people to have the appropriate incentives to do creative things and that is what blockchain allows then you have more and more people who could be creating on these other things. In the future, I might be able to produce a gene sequence that is awesome and I can put it up to the open bidder and/or whatever paradigm I want to do and people could maybe pay-per-use of it. It is the same way with a machine learning model. Somebody could have some novel machine learning model and put it up on a blockchain for somebody to use and spend $1 with each usage.
Imagine if I kept P3 which is pay-per-use on the blockchain, then it would go up to the open bidder and then you could do a bunch of cool things around open access and that does not necessarily need to be Microsoft’s OpenAI that made it. It could be some person who made it. As an individual technologist like me, I do not have to worry about some large hierarchy of anything. I just need to find where my model might be able to serve a purpose, put it up there, give some open examples of how it is doing something good and everybody can see it. Once you prove that in an open way, people will be able to use it. That is what inspires me. It is getting to those open usages of everything.
It is all coming together. That is the thing. Those things are in our future. We love to know more from you. If we had hours like Rogan, we could sit here and talk about this stuff all day but we do have to move on. We will see you down at NFT LA so maybe we can hear some more from you down there. We want to move on to segment two, which is called Edge Quick Hitters. It is a fun way to get to know you a little bit better. There are ten questions. We are looking for a short, single word or fewer responses but we may go a little deeper here or there. Are you ready to dive in on these bad boys?
Let’s do it.
Question number one, what is the first thing you remember ever purchasing in your life?
When I first read this in the brief, I can’t help but think about the first thing I ever stole. I can’t unsee it in my mind. I was on this family trip. We were at this trinket shop because it was on some vacation spot. I stole a weird necklace that was related to the area where we were. I had no money. I was four years old.
I wanted it and my mom said no so I was like, “I do not have any other recourse other than to steal it so I am going to do that.” They clearly knew that I stole it because we were in the car and I was wearing it. They were like, “Did you steal that?” I was like, “No. I found $10.” That was, of course, the biggest lie but they were like, “We do not want to make this awkward for the rest of the twelve-hour trip,” so we just drove. They didn’t even say anything. They didn’t know how to handle that as parents but the first thing I bought with the money that I made was magic cards.
Question two, what is the first thing you remember ever selling in your life?
I am a huge gamer. That one is pretty easy. I was one of these people on the playground who was good at pogs. I would practice and I was really diligent about it. The algorithmic thinking in me figured out the right way to throw. Anyway, I won a lot of pogs so I would sell them back to people that I would take them from.
Question number three, what is the most recent thing you purchased?
When I moved to Seattle, my movers lost two of my closed luggage so I have been rebuying all of my clothes.
Question number four, what is the most recent thing you sold?
I honestly do not even know. When I moved, I have probably sold a few things. I probably sold my old rickety desk off of my Craigslist and that was months ago.
Question number five, what is your most prized possession?
That one is easy. It is this Gap here in my room because there are skis.
Question number six, if you could buy anything in the world, digital, physical service and experience that is for sale, what would it be? What do you have your eye on?
Question number four, what is the most recent thing you sold?
I honestly do not even know. When I moved, I have probably sold a few things. I probably sold my old rickety desk off of my Craigslist and that was months ago.
Question number five, what is your most prized possession?
That one is easy. It is this Gap here in my room because there are skis.
Question number six, if you could buy anything in the world, digital, physical service and experience that is for sale, what would it be? What do you have your eye on?
The word on the street is we have a very special Hot Topic for this episode. Ethan, do you want to bring us in?
This episode’s Hot Topic features this fine gentleman, Gabe Frank, from Arcade. He is the CEO. It is the most sophisticated DeFi NFT lending infrastructure. He is a third-generation pawnbroker. Gabe helped run the family business of nine storefronts under the name Benny’s Pawn Shop founded in 1947 and eventually acquired in 2016. He is an early NFT enthusiast and DeFi advocate.
Gabe brings expertise from consumer and traditional financial markets to Arcade having previously supported BitGo growing their digital asset custody to over $1 billion and assisted BitGo Prime in building an institutional lending book to over $150 million. Welcome, Gabe. It is good to have you here and chat a little bit about Arcade.
It is going to be great to see you in LA. Matt is going to be there as well. He is familiar with Arcade but for our audience at home, why do not you kick off by telling us a little bit about Arcade and what you guys have been building?
Thanks for having me. Arcade is a peer-to-peer lending platform for NFT collateral. Our platform allows holders of NFTs to collateralize their NFTs, meaning they can get loans from NFT assets that they hold in their wallets. This is completely non-custodial protocol meaning we do not take custody of the assets and we do not have control of any of the money movement. It is all governed by our smart contracts.
The impetus when we started was to do two things. It was to enable price discovery on these assets and this was a couple of years ago and to enable secondary liquidity. To do that, we decided to spec out this peer-to-peer marketplace, which looks like a pawn shop. A pawn shop takes custody of an asset and gives a loan on that asset.
If the borrower does not come back to pay off the loan plus interest then the pawnshop keeps the asset. In this case, the lender can keep the asset if the borrower does not come back. These lenders will be bullish with these collections either way because they do not care if the borrower comes back to pay the interest or if the bar defaults and they have to keep the asset.
That is great unless it is a gaming asset which a lot of the value comes from playing the game, then they would have to know how to play the game. They might have to reach out to Matt for some lessons there.
We have not seen any end-game assets come to the platform yet but one of the issues we are facing is when an asset is inside escrow for a loan, it can’t be used on any of the platforms but there are ways around that. There are projects working on how to make that easier but we focus mostly on the high-value profile picture art and art stuff as well, like The Punks, The Apes, People, FEWOCiOUS packs and these high market cap artists.
Solana: Game makers want to be at a place where they can concentrate on the game and not have to battle with the underlying technologies that they’re using to provide a good user experience.
If something is on loan at that moment, many of the utilities are of massive value. How does that play into it? Are they able to leverage that utility or is that locked up while they have got that asset on loan?
The assets that are in a loan now do not have utility. Punks’ utility is that they are the OG collection. They are considered grails. For Apes, there is an airdrop coming and we have a way for users to claim airdrop when their assets are in an escrow. NFTs will start to have much more utility than they do and that becomes a bigger part of how they can still use the asset but take liquidity from it.
It is part of the roadmap here as you look ahead. We heard something about this massive loan associated with zombies you had come together. What is the scoop on that? It says to be the largest on-chain art basket loan. Is that correct?
Yeah. We have had two things. We have had the largest on-chain art basket loan. There were ten assets that were one-on-one art pieces from various artists and that was for $1.25 million. It was a six-month loan at about 15% interest. The borrower on that is a well-known collector. His name is Silver Surfer. He is super bullish on all the art stuff. His favorite artist is Pak. He sees these things as collectible items so he is not going to let them go for something cheap or very easy. He is going to try and payback that loan and get his assets back.
The zombie loan is pretty interesting because it was two assets. The loan was for 1,250 ETH at the time, which is about $3.5 million. For two months, it was at a pretty high-interest rate. It was 34% APR so somebody who is taking out that loan needs to know that they can beat 34% APR over the two months that they have the funds. He is a big whale collector and a DeFi power user in the space as most of our users are now but we will see what happens. Let’s see if his plan worked out.
Have you slain any whales then?
We are not in the business of whale hunting or anything like that but he does not want to lose his assets. Those are two very unique, rare assets that are part of the CryptoPunk collection. He is going to come back for those assets.
I am curious if you have any sense of trends in what people want to do with those loans. Maybe you do or you don’t. They could be using it for a business investment that is in or outside of crypto that they are almost certain there is going to be some sort of return on or cheap whiskey. What do you see in terms of trends that people might be willing to put these on loan like that?
The use cases are different. The first use cases are ring rates and DeFi. You get a loan on your NFT for 15% APR. You go on Yield Farm, Ribbon or on LooksRare for 40% or 50% APY. Those are the opportunistic plays. Other use cases we have seen are entrepreneurs that have businesses and they are reinvesting in themselves. Those guys will probably keep the borrow perpetual, meaning they will just service the interest and keep the money outstanding. The third use case is to buy more NFTs. It is about levering up and using the money more efficiently.
I was going to ask Matt what he might be interested in pawning and for how much.
I own a decent amount of NFTs at this point but I honestly have no idea how much any of them is worth. I think part of it is probably because of the liquidity issue. I have been tracking things like Arcade because I never really want to sell them but if I have other options, I would consider it.
You seem like the sharp cat, though. Maybe you do not have the time for it but when you would do the math and you would figure it out, you would put these things on loan.
I am curious. One of the aspects of this is the evaluation process and thinking about similar art collateralization. I am sure you guys have looked at that use case. How does that impact your model and what is on the roadmap?
It’s powerful to be able to focus on one thing at a time and just be present. Click To Tweet
The art world is a good comparison for what is happening on the platform. You have owners of Picasso’s, Monet’s and DaVinci’s that take loans against that stuff all the time. The Bank of America is one of the largest lenders against art. They have a $10 billion book. Those art borrowers are usually more sophisticated. They are wealthy people and billionaires. They reinvest it into land or what have you, reappraise the assets every year at a higher valuation and get more money out of it. That is the way the world works.
If you are in Web 3.0, you got to be pretty sophisticated to even know how to use a MetaMask wallet.
It is technical expertise. I would say that anybody who is buying a $100 million piece is a billionaire. What billionaires are good at is capital efficiency. It is investing, levering up and using that money more efficiently. We do have sophisticated users, of course, in DeFi. They know what they are doing. You can’t make a loan to Bank of America and go on Yield Farm or LooksRare. There is $2 trillion of privately held art and the art lending market is about a $30 to $40 billion market. That is the big comparison of what we are doing now because they are mostly high-value NFTs.
What is the size of the high-value NFT market now?
The entire universe of assets is $40 billion for NFTs but the blue chips, punk, apes and art stuff are probably $10 billion to $15 billion.
It sounds like we are catching up fast.
It is going to far exceed art because that is just one vertical that NFTs can be. When you think of it like that, it is in the trillions.
It is great to learn a little bit more about what Arcade is up to. We have talked about your use case on the show before but we haven’t dived deep like this so this was super cool. We are excited to have you as part of NFT LA. We will see you then.
Thanks.
Thanks for coming on. It was great chatting with you.
You too. Bye.
I feel like their ability to be able to have an easy button for figuring out the estimated value of your NFT portfolio super quickly and you are basically connecting your wallet would be of massive value. They are like, “We can offer you this loan,” immediately and passively. It would be game-changer if they could do that.
I realized that I wanted to ask about the other side of that equation. Would they end up with assets? For a traditional pawnbroker, maybe that is a place to go to find some deals.
There is a lot of goodness wrapped up in that. It is like pledged asset lines from traditional banks and whatnot that most people do not even know about that are out there. Keep the assets you like and borrow against them. It does not hit your credit or anything else. You can manage it smartly how you want. There is a lot of goodness in there but still some complexities. I heard we have some more fan shoutouts. We got some folks up in our Discord that are doing some good things. Do you want to share them?
Yeah. After that, of course, when we are wrapping up, let’s make sure we can give a shoutout to where people could find out more about Arcade we give out their socials or website.
I have so much fun hanging out with the fans in Discord. It is such a pleasure. Maybe they are people we already knew so we know they are fans and friends. Here and there, we would run into somebody at a convention but every day, there are good, creative and smart people hanging out in Discord. I am fascinated.
Solana: Gaming touches basically everything. It encompasses entertainment, content, technology, and audio, which make up the beauty of gaming.
Here is one for this episode. His Discord name is Herbertonic AKA Gilbert Pacheco. He is working on some emojis for our Discord. He’s an art student and a very talented guy. He’s a supportive and positive community member. Also, as a fellow entrepreneur, I heard he started some businesses and he had his fair share of struggles, wins and losses in those domains. We support him in that stuff.
I like this NFT collection, which is under the radar. It is a small collection he created called the Tower Squad NFTs. This guy is obsessed with giraffes. The description there says a group of giraffes is known as a tower. It is a giraffe world and they invite us to join the squad. Who will you be? There are bright colors, fun personalities and characters.
Here are a couple of descriptions. The Western Sheriff giraffe, hard but fair, dispenses justice with a six-shooter. The St. Louis giraffe, lively and joyous, go strolling on the fardy far to watch the cars then hit the boats. The original cool giraffe, charming and skilled, everyone loves him. Look up the Tower Squad and check them out. They are fun and beautiful. The prices are very reasonable if you want to grab one.
Who does not need a giraffe? If you are interested in entering the pawn store virtually, you can go to Arcade.XYZ. They have all their information. Their app is on there, of course and also their Discord and Twitter medium. You could also go on Twitter and follow them at @Arcade_XYZ. Check out what these guys are doing. It is unique and important to our ecosystem.
If you get a chance, go stroll on the fardy far and check out those cool giraffes too, while you are at it. It sounds pretty cool. There is big stuff happening on all these fronts. That is a wrap for this episode. There is so much goodness wrapped into all these different things that we have been discussing. Matt, we wanted to make sure that folks know where to follow the happenings at Solana as well as the stuff going on with you. You seem to be plugged in on a bunch of different fronts. What could we share with them?
Twitter and Discord are the two main places. We do all of our tech discussions on Discord and in public. It is @SolanaTech. Search for that. It is also listed on the Solana.com website. If you want to get an intense technical conversation happening in public around blockchain development, that is a great place but also, our Twitter for Solana goes over a bunch of things that are happening in public. We have various things around that then I am @TamGros everywhere. That is on Twitter, Telegram, Instagram and Discord.
There it is. Keep a close eye. They are doing great things over there. I heard we are going to do a little giveaway also for some time with you, Matt. It is a 30-minute consulting session with you. If you have got something you are thinking about putting up on Solana or you have some questions and ideas, Matt has graciously offered up some of his very valuable time for a giveaway. Get pumped about that.
Keep an eye on our socials. We will give you all the details via one of our contests for the giveaway. Matt, thank you so much. We do appreciate that.
Thank you.
We have reached the outer limit of the show. Thanks for exploring with us. We have got space for more adventures on the starship so invite your friends and recruit some cool strangers that will make this journey so much better. Go to Spotify or iTunes, rate us and say something awesome. Then, go to EdgeOfNFT.com to dive further down the rabbit hole.
Remember, we always invite you to co-create and build with us. We are unlocking a whole new way to connect and collaborate with us through our very own event, NFT LA, a one-of-a-kind immersive and unforgettable experience at LA Live in Los Angeles from March 28th to the 31st, 2022. Check it out at NFTLA.Live and move quickly as VIP tickets are gone and general admission tickets are flying off the shelves. Lastly, be sure to tune in next time for more great NFT content. Thanks again for sharing this time with us.
Important Links
- SolanaSerumSaber NetworkCryptoKitties
- Steam
- Dapper Labs
- NFT NYC
- Sup Ducks
- OpenZeppelin
- Metaplex
- Red Hat
- Angelic
- Justin Kan
- Bored Ape Yacht Club
- Unity
- CRISPR
- OpenAI
- ArcadeBitGoSilver Surfer – Twitter
- Pak – Twitter
- Ribbon
- LooksRare
- MetaMask
- Herbertonic
- Tower Squad
- Discord – Arcade.XYZ
- Arcade.XYZ
- Arcade_XYZ – Twitter
- @TamGros – Twitter, Matt Sorg
- Twitter – Solana Tech
- Spotify – Edge of NFT
- iTunes – Edge of NFT
- NFTLA.Live
About Matt Sorg
My passion at the forefront of applying cutting edge research to mission driven products. Over the past 12 years, my teams have quickly built scalable products that have added great value to millions of users.
We have hit the point with machine learning, infrastructure, data storage, battery improvements, and scalable decentralized state machines (Solana) that humanity has a real opportunity to make life changing products. Applying advancements in these areas to hearing health has been deeply rewarding. Utilizing the practical capabilities at each stage of the tech stack really adds up to a huge quality of life improvement for the end user.
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