Episode 84: Investing in the NFT Markets in 2H22 with Sasha from Arca

Ben Lakoff, CFA
September 12, 2022
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Sasha Fleyshman is the GP of a $50M NFT Fund from Arca. In this episode we talk about the NFT Market. Prices are down, volumes are down, but Sasha is still bullish on this nascent space.

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Show Notes

0:00:00 Welcome and context

0:01:47 What is your background?

0:03:40 What is ARCA?

0:05:15 Can you talk about the assets under management?

0:06:45 Who invests in Arca?

0:09:30 What are your thoughts on digital assets, metaverse, in-game items, etc?

0:13:35 Which sectors do you feel have the most potential?

0:18:15 What are the main concerns for gamers and blockchain gaming?

0:23:30 What can game developers learn from the current trends?

0:28:40 How liquid are NFTs right now?

0:33:20 What catalysts can bring more volume and interest to NFTs?

0:37:45 How do you view risk and speculation?

0:40:20 What are your thoughts on NFT meets DeFi?

0:45:10 Where could things go wrong?

0:50:21 What's your favorite tool to monitor NFTs?

0:52:01 Where can people find out more about you?

Show Links


Sasha on Twitter

Helpful other Alt Asset Articles

Episode Transcript

[00:00:00] Ben: Welcome to the alt asset allocationpodcast, exploring alternative investment opportunities available to theeveryday investor. Here's your host Ben Lakoff.

Hello and welcome to the alt asset allocation podcast. Today'sinterview is with Sasha Flaman. Sasha is the GP of a $50 million nFT fund fromARCA.

In this episode, we talk about investing in the NFT space.Overall there's loads of different sectors and these TLDR bullish, but we mightnot surpass those all timed highs we saw late last year during the most. Bubblypart of the NFT bowl run. If you enjoy this episode, please share it withsomeone, you know, or give it a like review or comment on whichever platformyou're consuming this on.

I really, really appreciate it. NFT investing with Sasha ofARCA. Enjoy

Sasha. Welcome to the Alta asset allocation podcast. Excited tohave you on today, sir.

[00:01:03] Sasha: Yeah. Thank you for having me. It'sbeen a long time coming.

[00:01:05] Ben: It, it has been a long time coming. We'vebeen back and forth emails probably for about six months now.

So the conversation that we would've had six months agoregarding the NFT market is probably remarkably different from the conversationwe're gonna have today as this whole space moves very, very quickly, but theNFT. As well is moving, moving very quickly. So excited to have you on todayand talk all things NFT what's going on with the market.

And, and especially from your unique perspective, being a PM ofan NFT fund institutional money. So yeah, excited to have you on today andwe'll get into all of those details about NFTs, where, where they are, wherethey could be going. But let's start off with you and your background and howyou came to start doing what you're doing now.


[00:01:58] Sasha: You know, pretty, I think it's a prettybasic beginning in, in late 2016 I was in college, found Bitcoin at the time.It was actually passed along by my uncle and he told me to check it out. Ifound it interesting. I think I was a libertarian before I even knew what thatwas. So, you know, I kind of just aligned with it.

I, I put some money into it. Didn't think too much of it. Early2017 happened and. You know, I, I just started getting more involved. I startedreading you know, the, the new I C O Y papers. I started reading about whatBitcoin, you know, meant the history of Bitcoin, you know, the, the five Ws ofBitcoin.

And, and from there, I kind of just, you know, Dove all in. Istarted you know, missing classes and missing, you know, parties and hangingout with friends. And I was just, you know, getting more involved. And at thetime it was Reddit and YouTube and, you know, like Bitcoin forums and it wasn'tvery you know, cryp to Twitter.

Wasn't as massive as it is today, but got more and moreinterested and. Took a liking to it started, you know, writing some mediumposts started, you know, trading my own capital. And eventually, you know,found my way over, over to ARCA. And you know, the story with NFTs is more orless the same where a project was passed along to us infinity and you know, II'm a gamer by heart.

So, you know, I took it and, you know, I played around with itfor a couple hours. Loved what I saw, went and bought some of the NFTs in thatspace and kinda Trojan hoed me into the, into the rest of the ecosystem.

[00:03:26] Ben: Nice. I say that frequently that NFTs areTrojan horse to get more people into it than you're the exact example of howthis could work for my audience.

Can we give a little overview of ACA what you guys do and thenspecifically what you're doing with the NFT fund?

[00:03:43] Sasha: Yeah, sure. ARCA is an asset managementfirm that focuses on investing and digital assets with institutional capital.We have a be of products but specifically I work on the NFT fund, which is, youknow, a, a long focused fundamentals fund that is just looking to gain exposureto what we believe to.

Be, you know, the, the forefront of the space you know, beingthat we're a fundamentals fund. We, we focus primarily on things that have somesort of I guess what you'd call like intrinsic value or floor value, whetherthat's through cash flows or through utility through some sort of, you know,supply demand dynamics, but.

Really just an all encompassing fund that looks at the NFTspace whether it be, you know, tokens or the NFTs themselves and gainingexposure, what we think has value as the space continues to grow.

[00:04:34] Ben: Fascinating and actually pretty forwardthinking for the NFT space. So for most people, you know, NFTs are associatedwith flipping NFTs and the, the terms like institutional money, long termholding fundamentals, these probably don't come into the, their world veryoften.

How much can you talk about assets under management or. Morearound the investment thesis for the fund.

[00:05:01] Sasha: Yeah. So the AUM is public it's weraised 50 million in capital. We went effective January 1st of this year, sowe're, you know, give or take six months old. And in terms of what we'relooking to invest in, you know, we, we, we kind of take a, a top down to bottomup approach where we.

Try to find these sectors and the ideas that we think will bebig. Either today or moving forward. And from there working bottom up to try tofind projects that fit that scope and, you know, trying to fill out thosebuckets. So, you know, for some examples you have, you know, like digital andin real estate you have in-game assets pass through or cash flow, producing assetsDIDs identity, tokens.

AI social and utility tokens. And then you can go to the actualecosystem token side. You can talk about gaming metaverse infrastructure butbasically you identify the, the sectors in which you wanna play ball in. Andthen you go from there and find the players and, and try to see which ones bestfit your thesis.

[00:06:01] Ben: Yeah I want to dig into those. Whenraising this fund from institutional money, 50 million, this, the type ofinvestor that invests in this, they it's just, they want exposure to this NFTasset class or what's what what's kind of the thought process for these guys.

[00:06:22] Sasha: Yeah, well, you know, obviously I can'tspeak directly for them. I don't know why everyone made the decision they made,but the way that we pitched it to them is that, you know, this, this, they'veprobably been hearing a lot about this space, especially over the last, youknow, 12 to 18 months. And while it is very exciting, it's also very you know,there's a lot of survivorship bias and there's a lot of a lot of hurdles thatjump through to, you know, have a proven track record and, you know, a, aplayed out thesis in this space.

So we, you know, try to impose upon them that there is anactual investible asset class here, and it's still very early. It should betreated as like a growth sector. It's not, you. Well defined. You have veryyou're prone to very volatile swings, as we've seen in between the, the sixmonths where you emailed me versus us going on this chat, you know, the wholemarket has fluctuated 80 to 90% to the downside.

So it's, it's definitely a a highly volatile market. And. WhatI explained to them when we were, when we were pitching the fund, is that we'reprobably in our 2017 moment for NFTs. Yeah. Where, you know, there's a lot ofbold ideas, grand visions Prices kind of over overstepped, the actual followthrough.

And you kind of saw that the end product for a lot of thesedidn't match up with what people were talking about. And so you saw a lot ofcapital leave it. Sure. Doesn't help you know, the macro conditions and what'shappening in crypto at, at large, but this was kind of inevitable, right? Wehad a zero to one moment in this space and what we were trying to impress, andhopefully we did impress was that.

We're not stopping at one. But one to two is not gonna lookanything like zero to one. So, you know, we, we have a pretty big vision forwhat the space could be. And my hope and guess is that the investors in thefund also see the value in this sector and as such, they wanted, like you said,exposure to the.

[00:08:14] Ben: Yeah. And I mean the NFT space, well,every asset class has been hammered in these last like six months, but the NFTspace as well, I mean, floor prices have dropped substantially in E and Eitself has lost 75%. So like in dollar terms it's down, but you know, thiswhole, it it's early. Yeah, definitely could be some, definitely some 2017moment sort of valuations on a lot of these.

But I think we, we all agree that there'll be the space ingeneral will be much bigger. So let's, let's jump into these sectors or ideas.So I just jotted them down, but digital land in-game assets did AI socialutility tokens gaming metaverse infrastructure. Did I, did I miss any.

[00:09:03] Sasha: , that's a good place to start there.

There's a ton of sectors some in which we play some in whichwe're watching some in which, you know, we're, we're just getting started withit. It's definitely. , I don't think there's any sector that's solidified yet.I think it's still figuring yourself out except for maybe collectibles and they'llstill iterate significantly, but that's a good place to start.

[00:09:20] Ben: Yeah. Yeah. It's also such a broad placeto start, right? I mean, this is the thing of a non fungible token, a tokenthat is not fungible, it's unique. It covers so many different categories. Likethe difference between digital land and in-game items, DIDs, just the firstthree on that list. These are all drastically different.

So I guess, how do you think about allocations of fund assetsacross these different buckets? Let's start there.

[00:09:49] Sasha: Yeah. I mean, you know, there'sdefinitely a. A ton of factors some, some range to, you know, the type ofasset. It is the type of return profile you're looking out of the asset.

What, whether or not you think it has some sort of intrinsicvalue in a floor price, or you think it's a binary outcome of either, you know,10 X higher or a hundred percent down you know, all of these effects, you know,the, the portfolio guidelines and the sizing mandates and, and how we, how we Truthe risk.

But it, it. You know, like for, for example, there are thingslike digital and real estate that have cash flows, whether it's like a tokenyield or it's a, you know, it's a, a productive asset that you can, you know,extract value from. Like these will have like a fundamental value frameworkthat we can at least work with on a very base sense.

And that'll help us shape whether or not we think it'sovervalued, undervalued, valued at par. And then from there we can decide whatour. Two five year vision is for this asset class, for that asset specificallyfor that sector and, and decide whether it's a good fit for things like, youknow, collectibles, it's more of a play on, you know, the grassroots effect ofbuilding a brand.

And, you know, it's, it's of our opinion that to play thecollectible space in a long term format, you have to bet on people that arecreating horizontal. That they're trying to build intellectual IP. So therethere's a whole bunch of different facets to play with these different sectorsand not all of it set in stone.

Like I'm, you know, I'll be the first to admit that I don'tconsider myself an expert. I don't think anyone in this space is an expert yet.I think we're all just learning and some of us are just spending more timelearning, but it's, it's very, very new and. A lot of this is still beingshaped. So I'm not going to cement any of these ideas in for how each sectoroperates, because I think that they are all prone to, to movement and torealignment with, with the new market dynamic.

[00:11:51] Ben: Gotcha. We've talked in the last sixmonths, things have been like, and we'll talk a little bit more in generalitiesand not like the specifics, but the last six months have been pretty brutalprices down. The real people are obviously still building, but you know, bit ofthe The, the craziness has kind of gone away.

Although if you were just in NFT NYC, it did not feel like abare market there. I think people had allocated their budgets six months ago orsomething, but looking at these, thinking about these different sectors wherewe are now, which ones do you feel like have the most potential and then whichones would be considered a little overhyped?

[00:12:37] Sasha: So. I don't know if either yourself orpeople listening in use the NANS and indices, but I find NAS in a very helpfultool to see what sectors are doing within our space. You know, they have theirNFT 500 index, which is just a broad scope and they also have their theyseparate it out by blue chip and gaming and art and metaverse and social.

And it's given me a pretty good perspective of what the marketis perceiving as overvalued and undervalued. For example, the gaming indexright now, everyone knows that the gaming sector's been hit rather hard, butjust to quantify that the gaming index is down 89% year to date against thedollar. That's pretty significant, right?

You, you also have things like the blue chip index down 64%against the dollar. And when E is down 71%, it, you know, you could, you couldargue that the blue chips are actually outperforming. So that kind of gives mea good basis point to jump off of I'm obviously a, a very big believer in NFTbased gaming.

I think there's a few significant kinks that have to be ironedout between the Guild structure between the. Play to earn mechanics and, youknow, the inflationary supply schedule. But I don't want that to detract awayfrom just how important the development of NFT backed gaming is for the gamingindustry.

And you hear a lot about how traditional gamers are either waryto downright, you know, just Against NFT use cases in gaming and, and they havesome, you know, pretty legitimate fears, you know, they don't, they're hesitantfor like play to win mechanics. They're they're they also don't really trustthis system.

And then you get into the more, you know out there argumentsabout environmental impact and, you know, just, just outright the like ethicaldebates of NFTs. And so there's a lot of like mistrust in the space, but. As,as an everyday gamer, I, I do think that this is a big step that. Very progamer. It kind of delineates the, the relationship between investor and gamer,where now the, the game, the, what, whether it's a company or, you know, a Dowor a product like a producer, they now interact directly with the gamer becausethe gamer's directly incentivized to see the game succeed.

So you have higher input from the gaming community. You havemore focus from. The the game studio to appease the game community. So it's,it's, it's very mutually beneficial in my opinion, to, to see it go this way. Ithink that we're still just very, very early in, in the product stage, as I wasmentioning earlier, that it kind of felt like 2017.

There's a lot of great ideas, but in reality, it's very hard toget off the hump and, and actually play an NFT based game right now. But Idon't think it's gonna stay that way forever. And I I'd be very hesitant towrite it off. So, so things like that are very attracted to me at these levels.I'm, I'm actively looking for new games that are coming, you know, they've,they've obviously had to have learned from the mistakes of games prior and, andhoped to build on them.

And I'm also looking at, you know, some of the big players thathave been around that may have you know, seen these mistakes come and, andthey're gonna iterate and they've been in this. Longer than anyone and youknow, that they're best set to, to fix them and move forward. So gaming issomething I'm very excited about.

I can't speak too much to art. I, it's just very hard forfundamentals, fun to focus on art. So I'm, I'm not gonna call it overvalued.I'll just call it something that I don't spend too much time taking a look at,just cuz it doesn't fit what I'm trying to do in this fund. Right.

[00:16:10] Ben: Yeah, the, the gaming and my listeners, Imean, I have gaming, watching games has been like a, a theme.

So just looking back, episode 77 with Sammy 73 with Ryan Wyattof polygon studios and 71 with. Board eon Musk all on blockchain gaming andkind of what the potential could be. So I, I, I think at this point, listenershopefully have heard a little bit about some of the, some of the possibilities.It's interesting with you actually being a gamer.

Most of these others are investors or kind of fans from theoutside, but. What there are some valid concerns by gamers against NFTs ingames. And you mentioned a few of them, but what, what are the most validconcerns by gamers about having blockchain games more prevalent?

[00:17:05] Sasha: I think that the, the argument that ifyou tried to.

Turn every aspect of the game into a financial product. Youstray away from being a game and stray towards it being like a. Almost like aneconomy where you have like, you know, you have workers, right? Like nobodywants to feel like an employee logging into a video game. Right? The, the, thereason that video games traditionally are pretty much recession proof isbecause you don't play games for monetary purposes.

You play games because they're fun, right? If, if, if any.Gamer listening, like thinks about the favorite game they've had, you know,you've, you've put in hundreds and hundreds of hours, not because there's adollar value attached to it for unless if you're, you know, professionalstreamer, but because you know, you enjoy playing the game and that's whatreally makes a great game.

And what we've seen thus far does not line up with that, right?Like there was the reason that NFT gaming fell off so hard when the bear marketstarted was. 99% of it was financially motivated. And once the financials wentaway, then, you know, you basically, your, your gamers were actually justmercenaries and they no longer had a reason to play that game.

So I think, I think that's a, a very valid point that every. Gamestudio or, or new product should be thinking about is, is focusing on makingthe actual game fun from the get go and incorporating NT assets, as you seefit, it doesn't have to be a, an automatic, you know, from day one type ofevent. And, you know, the other argument that I'm still trying to get my, getmy head around is the, the pay to win type of mechanic where like, if, if youdon't have enough capital, you you're stunted in, in the game itself becauseyou don't have access to all of the in-game assets.

I partially agree with that. And I, and partially disagree. Ithink that there are, you know, there's always gonna be types of gamers, right?There's gonna be casual gamers. There's gonna be competitive gamers and, andthey're all gonna have different facets. I, I, I think you, if you look at whatlike the sport gaming industry has done with like FIFA and, and Madden, likethe ultimate team, You can buy the, I don't know what they call like the coinsin game to go buy your ultimate team players.

And you can kind of skip the path and go from zero to a hundredrather quickly. It's frustrating for sure, but I think that this is somethingthat already exists and. For those that don't enjoy that type of game play.There's, you know, I, I, I'm just thinking like there isn't really a cryptobased like first person shooter.

And if there ever was those that play FPSs know that there'snot really a way to pay, to win those games. Right? Like everything that youcan buy in an FPS is cosmetic. So you can buy gun skins or like decals or, youknow, something for visual effect, but not for in game performance. I thinkthat that will also have inherent value.

You look at like CS go and, and what, some of those, likesniper skins are selling for on, on like steam marketplace and in theaftermarket. I can't remember the name of it, but there was a, a sniper skinthat sold for a couple hundred thousand dollars in cash, like in the last year.Like that's like this market already exists and NFTs are just a vehicle or a vesselfor it to become better.

Like when I played RO scape in Diablo as a kid, like I used tohave to go on like blizzard forums, or I think it was activation forums. Andpeople would like PayPal. You you'd drop the item in game and they'd send you$10 on PayPal. And it's very like very clunky. And a lot of times people gotlike items stolen from them or never got paid or charged back.

Like this is just a system for delivering an already wanted.Mechanic. I think that much of the animosities because of how the mechanic hasplayed out thus far. And I just don't think it's fair to judge a gamingindustry two years into its existence. When most games take five to seven yearsto fully go from, you know, idea to, to products.

[00:21:00] Ben: And I think that the difference intimeline expectations is one of the biggest ones in the gaming industry overallis like to create a fun game that people love and want to play these thingstake a lot of time and. I mean the buying the skin for hundreds of thousands ofdollars. People don't understand, but when gamers are spending the majority oftheir time in this metaverse world game yeah, I mean, who, who wants a Lambo,if you spend outside in the physical world, if you spend all of your time in agame, right?

You'd rather want that skin. It's the, the ultimate flex Youmentioned, I mean, some of the issues with this last bull round in gaming playto earn, you know, gamers being a little bit mercenary capital, this is verysimilar tune to kind of the death of defi defi, I guess, you know, people justjumping from one yield farm to another.

In terms of like, what can game developers learn? Obviouslythe, the play pay to play or, or play to earn sort of mentality. Is there, arethere any good aspects of that that need to be. carried over to like V2 ofblockchain games or what, what kind of blockchain game mechanics do you thinkare, are really, really good that will be integrated into this next version ofblockchain games?

[00:22:28] Sasha: Yeah, I think that the sweat equity portionof this whole concept makes a lot of. The more, the more effort that you putinto the game, the more benefits that you, that you take out of it. The, theperson that puts in a hundred hours, you know, toiling away and, and Cho woodshould have some sort of benefit for those that say, I don't wanna spend hoursshopping wood.

I, I will transact with you to take that wood off your hands.I'll give you X, Y, Z in return. And the beauty of, of that aspect is. A lot ofthis space is interoperable. Not all of it yet, but there, there are some, youknow, there's bridges and there's, you know, EVM compatible, non VM compatible.You can port over from game to game, depending on where you're at as, as agamer.

If you, if you play league legends for seven years and then oneday decide I don't no longer wanna play legal legends, you can basically takeall your cosmetic skins and say, I don't, I no longer have a use for this. I'mnot logging in again. And someone else on the other side says like, I wantthose skins.

I will pay for those skins. And you can take that capital andgo get cosmetics in a different game that you're just starting out in. So itdoesn't, it doesn't silo your, your capital, both your, your, your sweat equityin terms of time and your like actual capital. It doesn't leave it stuck in agame itself.

And I think that's very important if, if you believe in webthree and you know, the interconnectedness of, of what we're trying. Build inthis entire space. And I use we as a general term. I'm not really buildinganything. I'm just watching other people build and clapping. But if you, if youbelieve in that, then you have to believe that there, there has to be somemethod of value flow between interfaces, right?

If, if you spent all your time siloed and one interface and youcannot move that around, then it, it just becomes, you know, traditional gamingwith, you know, the word blockchain attached to it. And. So that part I thinkshould stay. And in my opinion has to stay where in-game assets should be yoursto own because you put in the effort to actually extract those assets, whetheror not.

There should be a, you know, flywheel hyperinflationarymechanic attached to it. I don't think that that will survive much longer in,in the new iterations. I think we've learned very clearly that while it is very, I'll call it beneficial to both the, the assets and the game on the way up.It's also very, very detrimental on the way down.

So this positive feedback loop mechanism of having an asset.Based on net inbound demand is just a dangerous game to play. So I, I, I thinkwhat you're gonna start to see in the new iterations and, and maybe the analogyisn't perfect and people won't like it, but almost like a, like a game side fedwhere they can kind of.

Work to dampen the volatility of these assets, right? Youshouldn't have an in-game asset that is required for base functions, go up sixX in a week. Right. That makes the game instrumentally hard, harder to playand, and, and difficult. And then you're gonna have people that come in toolate and get, you know, you know stuck with the short end of the stick.

Like, like nobody wants that. It was nobody's goal to havepeople you. Just get into NFT gaming at the top. So that mechanism has tochange. And I think some sort of, you know, Dow based, you know, whether it'sthrough governance or through something else where you can kind of control the,the net issuance or net burn of an asset like that, that is earned in game tomake sure that there's not, you know, Big snap movements up or down that wouldsignificantly affect the actual game itself.

[00:26:05] Ben: Oh, God algorithms make stable in gameassets, currency. here. Here we go again. But, but really, I mean, but that'sthe parabolic rise of these cryptos, make it fun, but like for usability it'sit's not the best. So jumping out of in game and back to like NFTs in general.This year.

I mean, we've seen a decline in open sea, like total volumetraded of NFTs. Do you, do you see this trend continuing? I mean, how do youthink about it as running a fund with liquidity premiums? Just talk to me aboutliquidity in general in the NFT space. .

[00:26:54] Sasha: Yeah, so it's actually something I'vespent a lot of time on in the last few weeks.

You, you kind of saw the run for the Hills Exodus. I believe atthe end of may where you saw the rap E offer acceptance rate jump to basicallyall time highs where everyone was just slamming. I, I don't know why we calloffer in this space, but everyone was slamming the bid on their assets and justtaking whatever the rap E that was afforded to them.

And just getting out of, out of everything. And you sawundercuts by a 10, 20% you saw, you know, the liquid just vaporize activitydropped off. And, you know, there, there was fear that like, you know, a lot ofthese would just be gone forever and that still may be true. But what I've seenin the last few weeks is that the right now where, like you said, likeliquidity is, is dry and it's like the price, the price that you see, isn'texactly the price that it is right now.

Right. Because if you, and, and I know this first hand, if yougo and try to offer out. Which is bidding. If you try to go bid on these assetslike you're not gonna get hit on, on these assets that are, that are what you,I guess you'd call premier assets like you there, there's no more room fornegotiation.

You have, you have to lift them or you're not gonna get theasset. I've been trying for two weeks to, to accumulate assets. And I think 2%have been accepted like that is, that is very low for what you'd consider amarket like this. Right. Where, you know, people think NFTs are dead and likepeople running outta money and they'll take whatever they can get.

We've been rather aggressive in our bids I think five to 10%below the offer and no nibbles at all. So I find that very interesting thatwasn't the case a few, a few weeks ago. So if, if anyone wants some, you know,sliver of bullish bias when it gets hard to buy, ask. Starts to give me afeeling that we're reaching a point where there there's just not that manysellers left.

There's a big difference between having no sellers and, andbetween having a lot of sellers and having no buyers. Right. Like right now wehave no buyers, which we can see, right. Volumes are just, you know, down 80%,but we also don't really have sellers. So it just, it. It may mean that weflatline for a few months and maybe something else takes it down again, wherepeople become sellers again, but more likely than not.

In my opinion, I, you know, I'm rather bullish premier assetsin this space. I think that the selling has stopped and now we're just in a,you know All quiet on the Western front type of ordeal, where everyone justlooking around, you know, checking for dead buys and making sure everyone'sokay. And then eventually there will be a signal that, Hey, okay, it's safeagain.

And once people decide that it's okay to, to get back involved,I think you're gonna see a, a pretty vicious snap back because like, if, ifyou, you know, pick your favorite project, go look at that asset and just golook. What, what the price change would be if you bought 10. If you bought 20,if you bought 50, right?

Like the there's big jumps, there's big price caps across allof these big assets. And you know, I, I try to do my best to not be afraid ofthe illiquidity of this market because that's, that's what makes it veryinteresting, right? This is a growth market and it's basically a step betweentrade by appointment and liquid.

So you have to kind of navigate those waters and understandthat You can't get oversized and, you know, get stuck in something. But alsolike, this is an opportunity for many people. Like this is if you can findthings that you believe in and, and you just so happen to be right. Like, thisis a very opportune time because like, there are no bidders in the market, butthere's also no sellers.

So that we're just kind of in no mans land right here.

[00:30:36] Ben: That is kind of an annoying thing. I havebeen putting out quite a few bids and they don't end up executing. So eitherpeople are not selling because they're bullish or they've just logged off forthe last month and they'll be back to sell in mass probably the former, ratherthan the latter.

So liquidity, I mean, your thesis is liquidity will come backand improve. What catalysts are you kind of thinking will bring in more volumeor more interest and kind of get this back up.

[00:31:13] Sasha: Yeah. So. I think, I think it only, I,I don't think that the entire space will come back flying. I think that you'regoing to see a lot of these projects die off the same way you saw a lot of, youknow, 2017 liquid tokens that, you know, had grand ideas.

They didn't pan out and more or less there's zombie tokens.Like I think that will happen. And we have to come to terms with, you know,maybe not everything in your NFT collection is gonna. Right. Some of these willhave been experiments and, and very expensive experiments, but they were, and Ithink everyone knows when they get into this space that this is not a A hundredpercent hit rate type of space, right?

There's gonna be some losers when, when you allocate here the,the premier assets or, you know, either the incumbents or whatever comes nextin the next cycle, those those will get improved liquidity in my opinion. And Ithink that that starts with one a strengthened digital asset market as a whole.

Right. It's always good. When, when there's net gains in thespace, because for better or for worse, you know, NFTs. Especially those thatdon't carry intrinsic value. They are definitely a luxury purchase, right?Nobody nobody's gonna be spending $500,000 on a board ape, unless if they havethat kind of excess gain from, from the rest of the space and you find that alot of capital in the space is recycled.

So I think step one is that you, you need digital assets tocome back as a whole, which it will, you know, nobody knows the timing, but.and, and two, I think you just need to see some products starting to actually.Deliver right. You have things like board apes, they just did their other sideland demo.

I know Luum is gearing up to do their Luum zero land play. AIEjust turned on their staking bridge and they're going to, you know they cameout their new origin set and they finally had it as like a rank season withrewards. Like you're gonna start seeing things come through and once you startto see execution happen, then you'll see people get more excited.

And I think that that will. Do better to carry this out of, outof the mud, I guess. And, and on the collectible side, you know, I think NFT NYC was actually very beneficial for that sector. I think like the Zuki meetupdoodles you know, and some, and some other projects that I don't pay too muchattention to.

You know, they had very positive feedback from what they, fromthe events that they hosted from the interactions that they had. And I think.That sector's completely different than what I would talk about in the gamingsector that sector's very socially motivated and, you know, to see that thosecommunities are thriving, even though everything's, you know, down 80% and youknow, like you said, there's a lot more people there than most peopleanticipated.

Like that's a healthy sign. It just, doesn't always immediatelyreflect in the price point. And, and I think a lot of people tether to the alltime high prices and say like, we're not back until we bust through theabsolute PECO top of where we were last cycle. And I, and I just don't thinkthat's a fair thing to, to look at.

I think that you're gonna have over extension to both sides. Ithink right now for the. Best assets were over extended to the downside. And Ithink in November through January, we were probably over extended to the upset.So normalizing to the mean is, is a normal process. And then from there, it'sjust about execution of, of what you say you're gonna do, because this is a hypersocial investment game, right?

Like everyone that's in this is very motivated. The discordsare, are humming. And, and people are quick to quick to catch you. If, ifyou're not doing what you're saying, you're gonna.

[00:34:41] Ben: Yeah. Yeah. And so you mentioned NFTs asluxury purchase with excess, you know, the wealth effect and full, full effect,right.

People make a lot of gains. They they're fine spending a 150 ona, on a PFP. But. So curious how you and, and the fund view NFTs as like on arisk spectrum, is it just a high beta crypto in general play or, or how do youview risk?

[00:35:13] Sasha: I think there are types, right? Likethe, the S that we're investing. I personally, and the team carry the beliefthat they have quantifiable value.

That should be irrespective of what's happening at large. Likeeverything in this space has high beta correlation in general, right? It's notgonna like, I'm, I'm not expecting something to have like inverse correlationor like a 0.2, but over the long term, you know, things that have fundamentalvalue, I expect to be largely Removed from the day to day movements of thespace, the, the difficult part in that, at this stage at the NFT market.

And it's just the harsh reality. And we've seen that actuallyin, in the, in the whole space that the KPIs that we all look at, right?Whether it's transaction count or users or, or volume or TVL, it's, it's hardto forward project those numbers, right? Because those numbers are very. Marketdependent. So you cannot, you cannot look at the last six months and forwardproject, the next 12 to 18, you have to take it, you know, probably a month ata time, to be honest and, and either have a very long dated view of like fiveyears or have a very short, dated view.

But a lot of people get caught in between for the next like sixto 12 months. And in reality, like when the market turned, the KPIs turned,which caused the market to go down again, which caused the metrics to go downagain. And it, you. It it's, it's a problem that we're gonna have in this spacefor a little while, at least just because we're like, I, I just still trulybelieve this whole space is in a growth sector, right.

We're not fully, fully established. We don't have, you know,hundreds of millions of users. Right. I think open sea at its all time high had550,000 daily active users in terms of like wallet it's interacting, buying, orselling, it's like 500,000 is a tiny number. Right? So like the. Those numberscan ebb and flow drastically depending on market conditions.

So that that's something that people still have to payattention to. And that's something that we're cognizant of, but a lot of ourinvestments are, are based on the merit of the asset itself, not its relationin beta to base assets. Makes sense.

[00:37:23] Ben: I'd be curious, your thoughts or positionon like NFT meets defi.

So the thought of derivatives NFTs is collateral renting outyour NFTs things to like increase liquidity of NFTs. What are your, what areyour thoughts on this space in general?

[00:37:44] Sasha: I think, I think it's a, it's a greatidea. The. Derivative market for NFTs will be a big boom to the liquidity issuethat we have in this space.

You know, derivatives markets tend to trade at, at multiples ofspot in general and, and this should be no different and having it and youknow, it's gonna get tricky, right? You have, you know, basically three partsof any I'm gonna focus on collectibles cause that's probably gonna be thebiggest derivative market to start.

You have three categories, you have the floor. You have likethe high, like the, the ultra rare assets, and then you have like the middle,like no man's land. And the reality is that like in the beginning, thederivatives will probably all have to be focused on. So just beta exposure tothe actual project.

And I think that that's gonna be very beneficial to give peoplea way to participate without actually having to acquire whole asset or, youknow, work with something that they don't understand. Maybe they're notcomfortable with NFTs, but they are with like, you know, ERC 20 S you know,fractional You know, kind of kickstarted this off by doing their, you know, youcould splice NFTs into fractions.

You have these vaults that you can put in and you get tokensthat represent the vault as a. But I think that these derivative markets willbe very helpful as for, as for the lend borrow market. It's something thatinterests me a ton. It also kind of scares me a little bit for multitude ofreasons.

One being that this space moves very, very drastically and onvery little volume. So I'm worried about both, you know like a phase shift inthe Mark Price, as well as like potential manipulation. You know, if someone,if someone You know, lends out a bunch of, or like, like post collateral for abunch of a certain asset, they can fluctuate the price to, you know, kind ofmanipulate how their, how their LTV operates.

And, and I find that a bit scary in the beginning. I thinkderivatives have to take off first, but I think it's very interesting. You'regonna have loan to own mechanisms where people will you know lend outcollateral. Or lend out assets to, to the person posting the NFT with the hopesthat, you know, they don't repay and you can claim the asset.

You're gonna have people that, that, you know, grab liquidityof their asset because they don't, you know, they want their asset to beproductive in the interim. And there's also gonna be debates on, on how to dealwith derivative assets. Right? If you, if you were lending out an ape duringthe, the ape token drop, like who has the rights to that, to that actual asset?

Like are, are like if someone's posting their APIs collateral,do they still have the rights to the deriv it or does the, the creditor haveit? What if you know, what, if you need that asset to, you know, verify with,with the interface, but you have it lent out like there, that, that, part'sgonna be interesting to see how that works out, but very

[00:40:19] Ben: interesting.

And for my listeners, I mean, so if you had a board ape, yougot like 10,000 ape tokens, which at one point was like $200,000. So if you're,if your NFT is sitting in a, a smart contract used as collateral, somebody elseis using, or what LT out, whatever it gets very. Very blurry and that's a largeamount of money.

And this is just one instance of, of what this could look like.Sorry, Sasha, but continue.

[00:40:47] Sasha: No, no worries. I, I think it all justboils down to, there's gonna be a big push for what is the standard in thisspace, in, in the lending market? Like what, you know, you're gonna have. Is itgonna be governance based?

Is it gonna be, you know, hardened set and fast rules? Do theassets actually, you know, cuz technically all, all the products that existtoday, the assets go into a smart contract. So the smart contract might haveownership of, of the claim. It's I think it's gonna cause a lot of problemsuntil it's fixed and then once it's fixed, you'll see a.

Another zero to one movement in the lending market. It'ssomething that we're actively looking at. We're still doing our due diligenceon the documentation is, you know, some of it's there, some of it we're tryingto reach out to the team and, and try to figure out, but like the, the upsideto that type of market is massive and, and someone's gonna get it right.

And, you know, someone may already be getting it right. Butit's gonna be slow and steady until you reach that point.

[00:41:41] Ben: And there'll be bumps along the way. Imean, but, but thinking about somebody like you guys with millions of dollars,tens of millions of dollars of NFTs, if you're able to post those as collateraland have a couple million dollars extra to dump into whatever pretty, prettyappealing Next one.

Okay. So I'm a bit of a pu permeable. I need to get some likebearish people on here to stop my echo chamber of bullishness, but where couldthings go wrong? Where are blind spots as CRI crypto NFT? Permeables what, whatvalid arguments do these non NFT people have from your perspective?

[00:42:22] Sasha: Yeah. So let, let, let's start withinthis space before we go to the non Ft people.

I think, I think a big kill factor for this space is the,there's a big issue going on right now with open sea and what they're doingwith blacklist assets. For those listening, the, the basic sense is that youbuy an asset through open sea, which is the marketplace and. Someone who soldthat asset goes and tells open sea that they they're marking that asset isstolen and open sea, you know, flags, that asset is suspicious and you cannottransact with that asset anymore until they cleared up.

And I, I haven't heard of a case where they've cleared upanything to date and this happened once or twice, you know, there was some bigthefts that happened in the last six months and it was understandable. But nowit's happening is that it's starting to get. Where you're starting to see someof these big projects have three, four, 5% of their whole collection beingmarked as stolen because people can just sell the asset and then mark it isstolen.

And then you have this liquidity liquidity discount attached tothese assets because the main marketplace no longer allows you to transact withthem. And you're seeing it happen right now. There's about a 10% discount forassets that are marked as as blacklisted and. It doesn't make that much sense,right?

Because the in ecosystem value of those assets remain the same.Right. All air drops will still be one to one. All in-game utility will stillbe one to one. Like there's no asset depreciation, it's just a liquidity suckand it it's becoming, it's becoming. Problematic. And so I think that if thatdoesn't get fixed in the next couple months, you're gonna start to see some,you know, some big players starting to you know, Huff and puff about, about theissues in that space.

If it doesn't get fixed, you're gonna, you're gonna see thatcome to a head. I think that's detrimental for, for the space right now,because open sea has by and large, the vast majority of the market share ofthis space. So they, you know, whether or not we like it, they act as thedefacto leaders and, you know, I'm confident that they can work to fix this.

I'm not, I'm not sure if it's a legal thing or just like acompany guideline, but there is something wrong with what's happening rightnow. And I think that it's imperative that it gets fixed. If, if you lookoutside of this space it's very hard for people that don't. It's hard enoughfor us that are in this space, but it's very hard for people outside of thisspace to look at a board ape and say, yes, that's worth $400,000 or to look atat an auto cliff and say, yes, that's worth 200 K.

You know, it's, it doesn't make sense to those people. And inpart they're not wrong, right? There are so many assets in this space and itit's just abundantly clear that the vast majority of the assets. Did so well inthe last year or two. Will not eclipse those levels again, right? Like therewere some, there were some severe over extensions.

And I think, I think what our market has done to combat that isyou've started to see the horizontal growth, right. Instead of instead ofhaving one asset in the ecosystem that goes to a million dollars per token, youhave airdrops right. You have subsidiary assets that also give access to theecosystem and you grow your user base from 10,000 to 50,000.

And now there's a smaller price point to jump into. The fact ofthe matter is like a lot of these are being priced in as something that alreadysucceeded and, you know, to the de tractor's point, there's not much on theexecution point that has happened for a lot of these assets. Right. There'sthey have big communities they've grown.

They've you know, a lot of them have hit the mainstream.There's been some partnerships, some IP stuff, and, and it's all great. butthat is, that is the minority, right? The majority is a lot of big dreams andbig prices and it. It just it just remains to be seen on how they're actuallygoing to play out.

So I, I think, I think a lot of the main annoyance from theoutside crowd is price based because these things are just so egregiouslypriced relative to what they think they would be worth. And they don'tunderstand that. And I, I can't help, but understand their point of view fromthe outside, looking in that.

Some of 'em, some of 'em I think are fairly priced, but there'salso some that I couldn't even argue with them, whether or not it's priced.Right. You know, there, there, there are a lot of NFPS in my personal portfoliothat I'm looking at right now and saying, why the hell did I pay, you know, sixE for that back in the day, you know?

So like everyone has one of those assets in their book. Or if,yeah, yeah. Hopefully, hopefully as little as possible, but yeah, it's definitely,it's definitely like a real thing. So in terms of like, whether NFPS are goingto. Be used in the world moving forward. I think it's without a doubt. Iobviously have staked my claim and, you know, I do what I do because I believethat as for the environmental concerns I that's a whole nother podcast, but I,I've just very, very against the notion that NFTs or even crypto at large havelike a net impact on the environment through, through carbon emissions.

So that, one's a really hard one to debate. It, it. It's likethere's facts and then there's opinions, right? Like the fact is that likeBitcoin mining, and as of right now, E mining use a lot of power and that's,you know, that's correct. And where you get into problems is that people startto extrapolate that because of the energy consumption that they're killingtrees, or like, you know, using more energy than, you know, 90% of thecountries in the world.

And, and. There's just a lot of talk about, you know, like whattype of energy these minors are using and, and whether they're, you know, usingat surplus or they're using in places with low, low demand, like it, like you,you need to like study basically electricity and thermodynamics, like fullyunderstand what's going on.

And I, I think that you have a lot of. People making argumentswith good data points, but drawing pretty bad conclusions. And that's gonna bea really hard one for our space to deal with because when people get entrenchedin an opinion and they have data to back it up and that data is factuallycorrect.

It's really hard to say like, Hey, you have the rightinformation. You're just looking at it the wrong way. And you know, we're notreally in an age, both in crypto and in, you know, politics in general wherethe Overton window is available for us to have these kind of discussions in afriendly way. So I'm worried about that.

I have hopes, but I think that we're gonna be dealing with theelectricity debate for decades. Yeah.

[00:48:43] Ben: Well, fortunately the merge and proof ofstake, hopefully this, this at least delays it for a little bit. Last question.I see a lot of tools that exist for monitoring NFTs. So you mentioned Nasonearlier, but what, what, in your opinion is the best tool for monitoring NFTsand.

For like the NFT trader and I know your long term trader withthe fund, but what sort of KPIs or, or changes are most helpful in kind ofpredicting potential price movements?

[00:49:20] Sasha: That's a great question. , that's onethat I ask myself a lot. I think that I think that the tooling in this spaceis, is still, you know, kind of.

Coming out. There's a lot of basic tools out there, but Ihaven't yet found anything that I would consider like day to day, other thanyou know, I use N a lot. I use doing analytics a lot doing analytics, justscrapes, scrapes data from, from sites and kind of compiles it in a way that'seasy to digest, but.

I'm actively looking for, for, you know, better tooling to, tobetter understand what's happening in the space. A lot of it right now is donemanually internally and you know, more than happy to, to take a look at anyproducts that are trying to solve that. In terms of, in terms of metrics thatyou're looking at you can, you can look at, you know, you have social metricslike followers and then, and you know, people in discord and activity anddiscord, you can look at traction based on like Unique holder count and, andvelocity.

Like how, how often are, are these exchanging hands? What'sthe, what's the volume relative to the cap? You can look at like the, like thesocial reach based on like the activity that's happening relative to the otherspaces. KPIs that I look at for gaming would, you know, be things like usercount and, and revenue and you.

Like historical asset pricing and, and trend shifts and stufflike that. It, it, it really is dependent, but I think that there's a ton ofinformation out there. I can not confidently say that one type of informationis the right way to look at this space. I think that I'm kind of trying to soakit all in you know, work with the analysts and, and see what has beenrepeatable, what hasn't do things need to be paired together to make sense?

Or is it all just too new? And right now we're just supposed tolearn and I think on a move forward basis, you'll start to see. Morefundamental analysis of what's going on in this space. I'm already starting tosee it with you know, people are comparing the MyUM drop to the Bordea tokendrop and like comparing, you know, float and, you know, user user bases andToken supply.

And so you're gonna start to see comps come into this space andyou're gonna start to see people trade based on, on sector like sector bases.And I think that'll start to develop a more strict guideline of what matters tothis space.

[00:51:35] Ben: Yeah, no, that's that's great stuff.Well, Sasha, this has been great conversation.

Where can my listeners find out more about you ARCA? Wherewould you like to send.

[00:51:44] Sasha: I'm on Twitter, Archer chemist. That'swhere I post all my musings. You know, we also have a, a website we, wepost a lot of outbound content from, you know, podcast articles to, you know,educational material and, you know, just feel free to reach out.

You know, we, we try to be as public as possible and yeah, itwas a pleasure. Thank you for having. Yeah, of

[00:52:07] Ben: course been a long time coming. It wasdefinitely worth it. Appreciate you coming on and thanks a lot. There you go.First off.

[00:52:14] Sasha: Thank you very much for listening all theway

[00:52:16] Ben: through. I hope you got a lot of valueout of that conversation as always.

You can find show notes, links, [email protected] Please share this with anyone you think might beinterested and deriv any value from this conversation. And as

[00:52:31] Sasha: always, you can reach out to me for anyfeedback or questions. Please give the video a like, or even better subscribeon YouTube or your podcast player of choice.

This really

[00:52:42] Ben: helps others find the podcast or thevideo as well. Thanks a lot. Hope

[00:52:47] Sasha: everybody

[00:52:48] Ben: has a fantastic day and stay safe outthere and invest

[00:52:51] Sasha: wisely. Cheer.

Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.