Despite ‘Crypto Winter,’ New York’s Art Scene Is Opening Up to NFTs

This article was originally published in the New York Sun.

Many people have pronounced non-fungible tokens as dead, calling them a fading trend as a result of a reduction in sales and OpenSea’s wave of layoffs. 

Even Starbucks’ recent partnership with Polygon Studios — a leader in scalable and energy-efficient production on the blockchain — has been mocked since the announcement last week. The partnership offers Starbucks NFT holders access to a unique set of perks, ranging from a virtual espresso martini-making class to access to unique merchandise and artist collaborations.

While these critics are right to point out the large decline in sales, there are also many signs of strengthening demand — and an emergence of even more use-cases for NFTs.

At their core, NFTs are fundamentally about authentication and ownership. Distributed ledger technologies, often referred to “blockchain” for short, are good at decentralizing consensus-making and deciding what activity gets recorded. 

Whereas traditional digital ledgers in an organization are under the stewardship of a department, or often even a specific person, these distributed ledgers aim to decentralize decision-making, often among geographically disparate individuals connected by common interests. 

NFTs, which are stored on the blockchain, signal ownership of an asset. That is why art and music are such important use cases — their creators make original versions that are necessary to protect from fraudulent knock-offs, ranging from fake Gucci purses to Rembrandt paintings.

Just last week, the William S. Paley Foundation announced that it would “auction off at least $70 million in art masterpieces this fall to expand the digital footprint of the Museum of Modern Art (MoMA) in New York and possibly acquire the museum’s first NFTs.” 

Even though MoMA contributed data from its full collection to Refik Anadol, a leading artist using methods from artificial intelligence, to build the NFT exhibition titled “Unsupervised,” it does not own any tokenized artwork on the blockchain.

The interest from established institutions, like MoMA, in art NFTs is not an isolated occurrence but a building trend. 

The Artist Rights Society — an organization that helps artists with copyright and licensing — launched its own web3 platform called Arsnl on September 9. It began with a series of NFTs by Frank Stella, an artist widely known for his paintings from the 1950s and 1960s. In addition to the digital artwork, each NFT holder also receives the rights to the 3D images, which they can use to print physical models.

The sale of not just artwork, but also rights, is substantial for the NFT community. At a time when many NFT projects have failed to delineate what holders are actually receiving, according to a recent Galaxy Digital report, clarity for the NFT holders is paramount. This has led to many disputes between NFT holders and the projects that they bought from, as well as some instances of fraud.

Moreover, the move toward greater clarity is a leading indicator that the market is maturing: Potential customers are increasingly aware of the questions that need to be asked. 

That contrasts with the early days of the NFT boom when projects, like the Bored Ape Yacht Club, soared, promising that holders “own the underlying Bored Ape, the Art, completely.” These promises have not always been kept. 

The owner of BAYC, Yuga Labs “implicitly acknowledges that the NFT holder does not, in fact, own the art.” Many NFT holders have also grown discontent, leading A16z to propose several intellectual property templates for NFT projects so that founders adhere to best practices.

Another example is Pace Gallery, one of the oldest and most established galleries in New York City. In 2021 Pace launched a dedicated NFT gallery called Pace Verso. While its aspirations have not yet come into focus, it’s obvious that Pace wants to embrace NFT technology and has already begun working with Art Blocks, a leading generative art web3 company, to showcase new artwork.

Bitforms and Postmasters — two other galleries — are working with emerging and mid-career artists on a more hands-on basis in respect of NFT projects. In particular, they are allowing artists to lead NFT projects that coincide with their exhibitions, offering buyers and fans additional opportunities to interact with their creative content. 

Manfred Mohr — one of the artists working with Bitform producing mathematically oriented art — has talked about the importance of the  physical manifestations of digital art.

Lydian Stater takes yet another approach, focusing on the intersection of contemporary and crypto art that is neither located in the physical nor digital worlds, but is rather a hybrid of both. They also care deeply about helping to train artists to use these new digital tools and applications on their own. Lydian State recently unveiled a virtual reality space of their current exhibition.

These trends tell us that NFTs are not just a passing fad — they are here to stay. The growing adoption of NFTs from reputable and established institutions demonstrates not only serious interest, but also a commitment of brand and vision.

The emergence of all these use-cases also counters the narrative that people just buy NFTs to funnel money around to avoid regulation or other compliance requirements, particularly around securities. The U.S. Securities and Exchange Commission defines securities according to three features, but the most controversial is the “expectation of profit” among those who get involved. 

Although some NFT projects and tokens exist only because they are trying to circumvent regulation, many other projects that exist bring substantial value and equitable remuneration to the owners.

Just as every organization is different, every NFT project is different. For example, we in Living Opera — a web3 multimedia startup — just launched a collection called MagicNFT Mozart that pioneers a novel approach to philanthropy using decentralized grant-making toward performing artists. 

Our initiative is hardly a “get rich quick” scheme; it is a collection anchored in engagement with the arts and philanthropy. Amid all the noise in the NFT market, many are making incredibly exciting discoveries and progress with applications well outside the digital landscape. 

Some NFT projects will survive — and those will be the ones that are truly creative and deliver long-term value to their holders. What we’re seeing in New York City alone is incredible momentum with the arts and NFTs, a trend that will continue.

NFTs are not Dead – Artists Shouldn’t Give Up as Real Wages Decline

This article was originally published in BeInCrypto with Soula Parassidis.

NFTs are not dead. Innovations in how NFTs are used are giving artists new opportunities to thrive. Now is the time for artists to embrace NFTs, says Living Opera founders, Soula Parassidis and Christos A. Makridis.

If you just look at financial indicators, whether it’s the price of Ethereum or the S&P 500, you might think that crypto – or all asset classes – are down. But that’s normal. The price of an asset is a function of its intrinsic value and expectations of future cash flow. So economic sentiment will generate cyclical volatility. The long-run question that matters is whether there is intrinsic value behind an asset – and the answer behind NFTs as a technology is yes.

One of the clearest use-cases for NFTs is in the arts. Our research in Living Opera has found that real wages for artists in the United States have declined since 2009. Moreover, their wages are below the national average. This is despite their having greater degrees of educational attainment. If the arts continue business as usual, it will implode – we need a solution.

NFTs offer them another pathway to success – and despite the downturn in the market, innovations in how NFTs are used are giving artists new opportunities to thrive. 

NFTs are not dead, they are here to democratize

You might not be surprised to hear that artists don’t earn as much as data scientists. But the reality is much worse. There are many more musicians than jobs and artists have only been losing more of their bargaining power over time. This is even in music genres where people might assume artists are fairly well compensated, such as pop and hip-hop. Artists have had to give up much of their intellectual property to record labels. Many are forced to leave their creative skills behind to support themselves. In fact, the Global Well-being of Artists survey we launched in Living Opera earlier in the year found that 53% had jobs outside the arts to pay the bills.

NFTs present another path to creative freedom for these musicians. Web3 tech exists to simplify and streamline value-creation. This provides people with secure pathways to connect directly with one another and get remunerated for their talents.

That’s why we’re launching a decentralized autonomous organization, or DAO for short, called the Living Arts DAO. We will create a decentralized grant-making ecosystem for artists to submit funding proposals and journey directly with philanthropists who want to be kept updated on their efforts.

There haven’t been all that many projects that have combined elements of Web3 tech with the classical music world. Yet artists in this space are uniquely positioned to explore how they can benefit from NFTs. Because classical music is in the public domain, artists do not need to worry about licensing rights. Classical musicians and ensembles tend to have loyal communities of audience members and fans. Supporters may be more likely to purchase NFTs related to their favorite pieces, particularly when they play an active role in supporting artists. 

NFTs are not dead… despite concerns

Many artists and arts organizations have legitimate concerns about NFTs – but the bear market could lead to positive change. 

The elephant in the room, of course, is that much of the market activity surrounding NFTs has given them a bad name. The bear market seems to have exacerbated this problem – between May and August 2022, the average price of an NFT sale fell 92%.

But the bear market isn’t all bad. Our research has found that lulls in the market have been times of innovation that have spurred generational projects. So we should not fear or dread the bear market, but dive into a lasting use-case for NFTs. Which is, connecting all kinds of creators directly with their supporters and ensuring that ownership remains with the creator. We’ve written before about how NFTs allow artists to retain licensing rights over their content. This allows them to become more financially independent and improves their bargaining power in negotiations.

We’re beginning to see more use-cases emerge even in retail. Recently, Starbucks and Polygon created their Odyssey partnership, providing NFT holders with perks.

Ryan Wyatt is the chief executive officer of Polygon. He said, “Big brands are starting to recognize the importance of how they digitally interact with their community in more immersive ways. Through Polygon, users can own their digital items and data, allowing for unique digital innovation that we’ve never been able to accomplish before. The Starbucks partnership elevates and advances what reward programs can do to empower users in a new way.”

Artists Own Their Work

At their core, NFTs provide a way for artists to own and license their work without the clutter of all the intermediaries, allowing others to build upon it.

Although the bear market is raging in the NFT world, innovation is still happening. New use cases for this technology are emerging every day. That’s why now is the time for artists to explore all the different ways they can use NFTs to connect with new people and expand their support networks. NFTs allow people to create tradable assets where there previously were none, So artists can enhance how people can engage with their work – and who can engage with it in the first place. 

NFTs are not dead. So, dear artists, now is our time. Let’s use this technology to innovate, create new experiences, and build new bridges in the world. 

The SEC is bullying Kim Kardashian, and it could chill the influencer economy

The article was originally published on Cointelegraph.

The feds should have tried to work with Kardashian to establish more transparent norms for influencers rather than slapping her with a $1.26 million fine for promoting EthereumMax.

The Securities and Exchange Commission announced on Oct. 3 that Kim Kardashian settled an allegation that she promoted “a crypto asset security offered and sold by EthereumMax without disclosing the payment [of $250,000] she received for the promotion.” While she cooperated and closed the case with $1.26 million in penalties, the charge highlights the liability that “influencers” increasingly face as a result of an activist SEC that has failed to establish regulatory clarity.

Pushing influencers to leave the United States

Addressing the agency’s action against Kardashian, Jacob Robinson, a legal scholar and host of the Law and Code podcast, noted that “The net-positive is [that] this probably leads to less shilling by celebs who have zero knowledge of the underlying project & are just receiving a big payday.”

Thanks to the proliferation of social media platforms, content creators and influencers have emerged and are working with brands to promote products and services. Sadly, the “creator economy” has also had downsides. In particular, influencers have often sold products and services that may not serve everyone’s interests, accepting payment from companies in exchange for their support.

While that privilege can be, and often is, abused, influencers are not doing anything systematically different than what corporations do when they take out paid advertisements in the media and on television, or even when board members join and take on a retainer to share their network and promote an organization. When a corporation takes out an ad in a large paper or magazine, such as The New York Times or Vogue, are the media outlets equally liable for not disclosing their acceptance of payment to all the readers? Clearly not, and the media’s business model would quickly crumble if they were unable to accept such paid advertising opportunities.

So, why are influencers treated so differently, and why can they personally be liable and targeted by a federal agency? Consider the car market: If a used car salesperson sells a customer a car that is later recalled or turns out to have some other flaw, are they singled out by a regulatory agency? The car company might be — as we have seen with Volkswagen, Toyota and others over the years — but the individual employee is generally free from such liability.

The SEC’s action against Kardashian risks alienating and stifling other members of the creator economy. While she can “afford” the $1.26 million fine — a little more than $1 million in excess of what she earned — many content creators are not making six-figure-plus salaries each year. The action also threatens to push many content creators outside the United States to countries that have more favorable policies.

Defining securities and liability

The SEC has adhered to an old Supreme Court ruling from 1946, SEC v. W. J. Howey Co., which led to what is now known as the “Howey test.” The Howey test defines an “investment contract” if the following conditions are met: 1) an investment of money 2) in a common enterprise 3) with the expectation of profit 4) derived from the efforts of others.

The test, however, was introduced in an entirely different economy than the one we have today. To be sure, many projects that involve the release of fungible tokens easily fall into the category of a security regardless of how liberal one wants to be with the definition. But other projects, especially nonfungible token projects, are in a much grayer area. Many NFT projects do not convey any expectation of profit to their potential holders but rather emphasize perks and exclusive access to events, classes or deals.

Admittedly, the SEC’s recent regulatory action went after Kardashian for her promotion of EthereumMax (EMAX) without disclosing that she had received payment rather than for EthereumMax being a security, as it was arguably an easier, more clear-cut case. But the case highlights a major challenge influencers will inevitably face in the Web3 economy if they have to worry about regulatory risk against themselves for promoting different projects, even if they just make a social media post.

Other countries are taking a vastly different approach toward Web3. For example, the United Arab Emirates has gone on record saying that it wants its economic success to be measured according to its “gross metaverse product” rather than the conventional gross domestic product that has become the norm for cross-country comparisons in productivity. The UAE, among others (such as Singapore), has become a hub for entrepreneurs and startups.

What happened to Kardashian could happen to others

If the regulatory concern is that influencers are abusing their authority by promoting products and services without disclosing receipt of compensation, then Web3 lends itself perfectly through greater transparency and accountability on the blockchain. In particular, influencers could have their digital wallets open for viewing so that their remuneration is open and their own purchases visible. (There is still a need for privacy-preserving blockchains since everything in everyone’s lives should not be on full display, but with the blockchain, there is much more potential for transparency and accountability where it matters.)

Web3 also allows content creators to receive payment for their creative content without having to rely as much on centralized entities for brand deals and partnerships. NFTs, for instance, allow artists to transform audiences into communities that engage with their content directly.

What happened to Kardashian could have happened to several influencers. While regulatory actions without penalties admittedly do not have much bite — and often, such penalties are needed to signal that an agency is serious — an alternative strategy would have been to reach out to Kardashian and galvanize support among a body of influencers to establish stronger, more transparent norms around the promotions of products and services, particularly crypto projects that could be classified as securities. Such an approach is more collaborative and would contribute to establishing shared norms and best practices among crypto enthusiasts.

Christos Makridis is an entrepreneur, economist and professor. He serves as chief operating officer and chief technology officer at Living Opera, a Web3 multimedia startup, and holds academic appointments at Columbia Business School and Stanford University. Christos also holds doctorates in economics and management science from Stanford University.

Employee ownership could be the future of capitalism–but it doesn’t work unless workers earn it

This article was originally published in Fortune.

A recent op-ed published by Fortune suggests that “shared company ownership may be the missing path to the American dream.” From today’s vantage point, it’s a tall order. Authors Darren Walker and Pete Stavros go on to say that “investors, financial institutions, and labor advocates are among a growing movement that believes that employee ownership would resolve the structural challenges faced by the economy.” A tall order, indeed.

We tend to forget that employee ownership largely built the American dream through the first hundred years of our country’s history. The “company” was typically a farm, stable, or dry goods store. Participation in the family business was a given, as was employee engagement. The “company” was handed down over generations. And not much changed until the 20th century made way for mass production.

Mass production meant lower product costs, and subsequently lower cost of services—again, the stuff of the American dream. However, with great growth came a great separation between owner and employee. Customers were delighted. Fortunes were made. But over time, wealth concentrated at the top, while unrest accumulated at the bottom. As employees were pushed out of ownership, engagement petered out. The ownership culture that was once so evident, so American, became the exception.

Many well-intended business owners muse, “We want our employees to think and act like owners, so let’s make them owners.” They hand out stock, enjoy a round of applause, and wonder why nothing changes. It’s akin to a university distributing degrees to students who haven’t begun their studies. Business ownership–like home, car, or pet ownership–is about responsibility.

Corey Rosen notes in his Harvard Business Review piece, “How Well Is Employee Ownership Working?,” “ESOP (Employee Stock Ownership Plan) companies that instituted participation plans grew at a rate three to four times faster than ESOP companies that did not.” Without participation, or taking on of responsibility, there’s no documented increase in performance. With participation, results improve significantly.

Using survey data from the past five years, we’ve found that partnership and participation substantially and consistently improve business performance. In fact, companies in the top quartile of the Economic Engagement index have double the profit growth of their peers, as seen in 10 waves of research of 50-150 companies per wave.

This philosophy is anchored in “economic engagement”, a way of running a business founded on partnering with employees to serve customers profitably, improving both business results and the lives of the employees who drive those results.

An economically engaged company can be identified by the following five practices:

1. Customer engagement is the starting point since customers define value and, thus, the economics of any business.

2. Economic understanding aligns all employees in a common understanding of what defines success for the company.

3. Economic transparency enables all employees to see how the company is doing and learn from successes and failures.

4. Economic compensation gives all employees a shared stake in the results, making them economic partners in the company.

5. Employee participation leads to lower turnover and better relationships between owners/managers and employees.

That might sound obvious, but the practical implication is that these five components of Economic Engagement need to be explicit in an organization’s day-to-day working, otherwise companies risk touting talking points at the expense of partnering with employees.

Robert Griggs’ company, Trinity, is a great example. From an initial modest investment in 1979, Robert saw a rate of return of 22%, almost three times that of the S&P 500 over the same period. Using a combination of open-book management and continuous improvement, the company has involved employees in decision-making for decades. They did not start with employee ownership: They only recently made the natural move to an ESOP, benefitting owners, employees, customers, and their community alike.

Fortune’s recent article goes on to profile Hyperion Materials & Technologies, which “granted all 2,000 of its employees ownership in 2019 alongside a robust internal employee engagement effort.” Profit margins increased by 57%. Ownership is great, but without effective employee involvement, it does not change long-term results.

Once employees understand the economics of the business, they can make autonomous decisions, with the organization becoming more agile, responsive, and profitable. This is what really makes employees feel and act like owners.

Southwest Airlines (SWA) has outperformed the rest of the industry for over 50 years and seems to run on fierce company pride. It’s clear where that pride comes from. As other airlines repeatedly go bankrupt, they continue to turn a profit. When downturns come, competitors lay off employees while Southwest retains its talent. Yet how they arrived at employee ownership behavior is instructive.

In 1990, the pilots agreed to an unprecedented 10-year union contract. In exchange for a five-year pay freeze, they were granted options to acquire up to 1.4 million shares of the company’s stock each year. Employees were not simply given equity–they purchased it. The stock soared.

Earning ownership, and actively participating in the running of the business, are essential to effective ownership for both employees and the company. This is where incremental performance and wealth gains come from. This came naturally at SWA–after all, it was a pilot who invented the fabled Southwest “quick turn.” Their “Plane Smart Business” Economic Engagement initiative with Orlando Pilots generated $2 million in fuel and productivity savings in six months. But this crucial relationship between involvement and ownership isn’t unique to Southwest, nor should it be.

Other examples of strong participation, responsibility, and ownership abound, including Feuerborn Engineering (their cumulative revenue went up 300% and profits up 400% cumulative in seven years, without no layoffs), Boardman Fabrication (after applying economic engagement principles, sales grew by 55% in the first year, and profits were more than the past three years combined across the entire company), and Adams Beasley Remodeling (sales doubled and profits grew even faster).

The benefits of a self-funded, well-working employee ownership program? Well, it just might be the answer to the economy’s current uphill battle. But what makes it work? It turns out it’s been there all along–the employee. Employees who understand, drive, and share in the wealth they create think like owners–and participate in the American dream. 

Christos A. Makridis is a professor, entrepreneur, and adviser. He serves as an adjunct fellow at the Manhattan Institute and holds Ph. D.s in economics and management science & engineering from Stanford University. Bill Fotsch is a business strategist and writer.

Music NFTs will take gaming to new levels

This article was originally published in Cointelegraph.

The GameFi industry has surged since 2020, with some estimating a market capitalization of $55.4 billion as of February 2022. While others have much lower estimates closer to $3 billion, one thing is for sure: The industry grew rapidly from zero and is poised for continued growth. What matters, however, is not the day-to-day or even month-to-month market cap, but rather the continued rise of users who feel like they’re extracting value.

Games are created so that people have fun. But the rise of “gamification” refers to the application of gaming principles into otherwise boring, but usually value-enhancing, activities. For example, many educational activities can be boring until they are gamified. Technology can be applied to more complicated classes in mathematics and science, but it can also be used to help students learn how to navigate a large university campus. One Arizona State University scavenger hunt, for instance, “guides users to landmarks around ASU’s Tempe campus for a fully virtual experience or to visit in the real world,” gamifying the way students learn about the campus.

But one aspect that is often forgotten when constructing virtual or augmented leisure activities, or other gamified experiences, is the role of music.

In-game music

One of the most underappreciated aspects of games is the music. Everyone always thinks of the imagery, storylines and technical performance, but we sometimes forget about the music. To be sure, all the aforementioned factors are crucially important, but music is also what enhances the in-game experience and makes it more realistic and memorable.

“Music is probably one of the most underappreciated yet high-impact parts of any game. When it's done right, you don't even notice that you are being influenced by the music, but when it's done incorrectly, it is very obvious. What we focus on in the games is the emotions we want the user to experience, it sounds simple, but in reality, finding the right array and options is exceptionally time-consuming,” said Corey Wilton, co-founder of Mirai Labs.

Studios often access sample packs or purchase an audio file from a website and modify it as they see fit. For example, audio packs of a specific genre often provide five-to-10 options and suit the tone for the game. Most developers will have hundreds of these stacked over time if they are a casual- or medium-sized studio that ships many titles. But the limitation of this approach is that the artist behind each song receives a small fraction of the contract size.

The reason for that is economic: studios buy audio in bulk at a much lower price than they would if they were buying individual songs. While the upside for them is a lower cost, the downside is that their search is often less directed. Similarly, the upside for the artists who produce songs is that they find some demand for their audio, but the downside is that they are not remunerated for their individual contribution – rather, they’re compensated at a discount based on where in the audio pack it lands.

Revolutionizing the sourcing of music

Nonfungible tokens (NFTs) have the potential to transform the way music is curated and even created for games. Rather than having to rely on large contracts that take forever to get approved, GameFi leaders can simply buy up individual music NFTs or commission a group of artists who agree upon an equitable split of the revenues and collectively mint an NFT. Once done, the NFT would immediately plug into the game and the artists could receive remuneration for their created content based on the popularity of the music. This could be implemented through ratings and other feedback mechanisms.

Classical music NFTs have a special role to play. There is simply no audio substitute for the epic nature of classical music, ranging from Wagner’s “Ride of the Valkyries” to Carl Orff’s “Carmina Burana.”

Fortunately, adding music NFTs to games isn’t much of a stretch. Digital assets are already being traded in games. One project — House of Blueberry — has created more than 10,000 assets that people can buy to express who they are and to use in games and online communities.

And music NFTs can also create value for games that are not purely blockchain-based. The only difference is that the creators would purchase the NFTs on the blockchain and find a way to remunerate the artists.

“I work hard to remind them that the end-user wants ease of access (i.e., download and account creation), games that are quick to start and learn but hard to master, instant purchasing ability if they wish to spend money in-game, and a game that is heavily engaging and keeps them coming back for more. If they are unable to execute these foundational game design elements with blockchain, they are creating themselves a losing formula,” Wilton added.

Christos A. Makridis is an entrepreneur, economist, and professor. He serves as chief operating officer and chief technology officer for Living Opera, a Web3 multimedia startup, and holds academic appointments at Columbia Business School and Stanford University. Christos also holds doctorates in economics and management science from Stanford University.

Crypto developers should work with the SEC to find common ground

This article was originally published in Cointelegraph.

Regulators are tasked with balancing between protecting consumers and creating environments where entrepreneurs and the private sector can thrive. When markets face distortions, perhaps due to an externality or information asymmetry, regulation can play an important role.

But regulation can also stifle entrepreneurship and business formation, leaving society and its people worse off. The United States Securities and Exchange Commission has been particularly hostile against cryptocurrency companies and entrepreneurs. For example, SEC Chairman Gary Gensler has remarked that he views Bitcoin (BTC) as a commodity but that many other “crypto financial assets have the key attributes of a security.”

He reiterated the line in an explosive Aug. 19 op-ed penned for The Wall Street Journal, arguing that “you could replace ‘crypto’ with any other asset” when talking about the regulation of securities.

But rather than “regulating by op-ed,” as some crypto enthusiasts have framed it, a better strategy would be for developers, investors and regulatory agencies — like the SEC — to work together at least around common standards that can raise the quality of projects overall and establish best practices that the entire community of Web3 participants will benefit from.

“Regulators are effective when they’re also in the trenches with the innovators and industry builders,” Mirai Labs co-founder Corey Wilton told Cointelegraph.

That means there needs to be an open and free dialogue between regulators and developers. “Developers need to become familiar with Know Your Customer (KYC) best practices, vendors that are available, and how those KYC services are integrated, and how they need to manage user roles [and] capabilities,” said Simon Grunfeld, vice president of Web3 at Cogni.

Defining securities

Almost every article on crypto regulation points out the classic Howey Test based on a 1946 Supreme Court case that established precedent around the definition of a security. But Gensler has honed in on arguably the most important one of the criteria, namely that “the investing public is hoping for a return.”

To be sure, many nonfungible token (NFT) projects launch, and their founders promise investors large returns that turn out to b patently false or at least exaggerated. However, the problem with these projects is not that NFTs need to be classified as a security, but rather that these founders are engaging in dishonest marketing and making claims that they simply cannot deliver on.

According to the Howey Test, an “investment contract” exists if there is: (1) an investment of money, (2) in a common enterprise, (3) with the expectation of profit, and (4) to be derived from the efforts of others. But what if we applied the Howey Test to a house? A household could be considered a common enterprise, especially if there is a family business, and every homeowner invests with the expectation of house price appreciation. 

One counter is that a household is too small to constitute a common enterprise. But where is the bright line? What if the family is big? Or what if the immediate family lacks the resources and relatives contribute to help finance the house? Or what if a handful of people decide to rent a bigger house in anticipation of spending some time in it but also intend to rent it out on Airbnb as they travel and spend time in other locations? The problem with the Howey Test is that it was designed for a much more specific and narrow situation — one that involved leasing to farmers.

Sadly, the absence of a clear bright line between securities and commodities in the digital asset space has created substantial regulatory risk for Web3 entrepreneurs and companies, causing many to locate their activities offshore. Given the inherent anonymity involved in the Web3 community, particularly related to company formation, quantitative estimates are unavailable, but anyone who spends any amount of time talking to people in Web3 quickly sees that they are outside the United States.

However, even then, both users (especially in GameFi) and owners must be cautious. “I see no path for U.S. regulators to come after a (U.S.-domiciled) individual for gaming on an illegal site unless that individual is using that site for money laundering or other illicit activities involving other U.S.-domiciled individuals,” Grunfeld said.

“Otherwise, the individual assumes the risk of depositing funds,” he added. “In many cases, these platforms may trick people that they are subject to U.S. regulation. Then, the regulatory risk is all on the platform — it’s the platform’s responsibility to comply with local and international laws, and if they are opening accounts for U.S.-based people, then they run the risk of being touched by the long arm of the U.S. Treasury.”

A Web3 compromise

Standards have an important role to play in markets. They establish a predictable threshold for minimum quality. The best types of standards are those that emerge organically as a result of demand and coordination in a community whereby members recognize everyone is better off by adhering to a set of best practices. A common set of open-source and organic standards is perhaps best demonstrated by the W3C standards, which cover the spectrum of application development.

In particular, the W3C standards for verifiable credentials and decentralized IDs have proven to be principal sources for coordination and adoption in global education. Organizations, ranging from governments to large publicly traded companies, need interoperable technologies that do not lock them into specific vendors or systems that could create unnecessary risk— (e.g., if one system goes down or a business fails. These types of standards become a requirement for true global adoption; without them, pioneering technologies will remain bespoke and never reach scale.

We are seeing how open-source standards within the use case of education provide an opportunity for anyone, regardless of where they are in the world, to scrutinize a technology and ensure that it has passed through rigorous trials for privacy, security and interoperability, providing clarity and comfort for large-scale institutional partners who can bring new technologies to the masses.

“Bringing Web3 education to the masses would be impossible without a firm standards-based backbone… all of the innovation happening in our industry would eventually become a fragmented mess of systems that do not communicate or exchange, no different than the centralized systems of the past,” said Chris Purifoy, chairman of The Learning Economy Foundation.

The question for us in the cryptocurrency space is whether we can develop a similar set of standards as the W3C standards for verifiable credentials in the market for education. Such standards create not only interoperability but also norms and best practices that ensure minimum quality. That would take the burden off regulators to look so intently at NFT and other crypto projects since the quality of projects would be higher overall and the incidence of “rug pulls” would be much lower.

There is no simple solution here, but both sides need to understand each other’s positions better. That will only happen when they meet each other in the middle.

Christos A. Makridis is the chief operating officer and chief technology officer for Living Opera, a Web3 multimedia startup, and holds academic appointments at Columbia Business School and Stanford University. He holds doctorates in economics and management science from Stanford University.

Consumer sentiment matters more than inflation and unemployment numbers–and it has never been so bad for so long

This article originally was published in Fortune.

Much like the unemployment rate, inflation numbers can miss the mark on properly reflecting a country’s economic mood because these figures offer an incomplete picture of a country’s economic health.

Consumer sentiment, on the other hand, reflects our attitudes about the current state of the economy and expectations about its trajectory. And by all accounts, consumer sentiment is at record lows–and its decline has been more protracted than during past dips.

In June, the University of Michigan Survey of Consumer Sentiment reported the lowest-ever level of consumer sentiment on record–even worse than that during the “stagflation” in the late 1970s or the financial crisis in 2008. Additionally, it reported the highest level since the late 1970s of expectations for future inflation of 5.3% or more.

There is preliminary evidence that consumer sentiment has been higher in August–but much of the recovery could be seasonal and it seems unlikely that it will last.

“Wages are not keeping up with rapidly rising prices, causing Americans’ purchasing power to erode and their confidence in the economy to deteriorate,” John Leer, chief economist at decision intelligence company Morning Consult, told me.

Morning Consult surveys roughly 6,000 U.S. adults each day on a range of economic subjects, and despite a slight national uptick in July, the company’s Index of Consumer Sentiment is down at least 15% in all 50 U.S. states compared to July 2021.

The Conference Board, another organization that measures sentiment, reported similarly low levels of consumer sentiment for July. Only 17% of consumers said business conditions were “good,” down from 19.5% in June–and about a quarter (24%) of consumers said business conditions were “bad,” up from 22.8% in June.

Only half of consumers said jobs were “plentiful” and 12.3% said jobs were “hard to get,” up from 11.6% in June. Expectations over the next six months are mixed at best: Only 14% expect business conditions to improve, relative to 14.6% in June, and 27.2% expect business conditions to worsen, which is a slight improvement from 29.7% in June, but still grim.

No matter how you look at the data, consumer sentiment and expectations about the labor market are deteriorating. Focusing on unemployment figures and inflation numbers runs the risk of painting a misleading picture of the economy.

Low consumer sentiment can also help explain the 0.9% decline in gross domestic product (GDP) for Q2 of 2022 in the U.S., which comes on top of a decline of 1.6% in Q1 2022. Pessimistic consumers fuel a contraction of GDP and investment since they are more likely to save up for the future or simply allocate less time towards economic activity by working and consuming less.

My recently published article in the European Economic Review provides new microeconomic and causal evidence connecting economic sentiment and consumption. Using daily data from Gallup on consumer attitudes about the current and future state of the economy, I found that increases in economic sentiment are strongly associated with increases in the consumption of non-durables (such as food and clothing). When people are optimistic about the economy, they spend more.

That might sound obvious, but economists have struggled to pin down the relationship because there are so many confounding factors at play when looking at both consumption and sentiment, so obtaining an actual quantitative relationship between the two is tougher than it sounds.

Social networks play an important role in propagating information and ultimately economic activity. Some of my other ongoing research with Tao Wang from Johns Hopkins University, for example, shows that social networks can explain why some counties experienced such a sudden decline in consumption during COVID-19 even when their areas were actually not facing large or even moderate infections: People in those counties were connected with friends in counties experiencing a rise in infections. Given that 74% of individuals reported using social media as a way to stay connected during COVID-19, the importance of social networks probably comes as no surprise.

I have also leveraged data from Facebook’s Social Connectedness Index and compared individuals in zip codes that vary in their social networks and their relative housing markets. That is, if you live in a zip code that is connected–based on Facebook connections–with others in the U.S. that are experiencing housing booms, you are going to receive more optimistic economic information than a friend who is in a zip code that is more connected with other zip codes experiencing housing busts.

Similarly, the media share at least some of the responsibility for declining consumer sentiment. Bad stories sell more than good stories, so it is easy for bad news to spread and dwarf various good pieces of news.

That does not change the reality that consumer sentiment, expectations about the economy, and views of the labor market are at record lows. Nor does it change the reality that consumer sentiment is driven by changes in the real economy, meaning that artificial stimuli or subsidies will do little to curb economic deterioration.

The U.S. remains the most entrepreneurial place in the world and great potential continues to exist whether its economy is in a boom or a bust cycle. If we can remove some of the barriers that are squashing supply, ranging from energy to the labor market, we can see the economic tide turn again.

Christos A. Makridis is a professor, entrepreneur, and adviser and serves as an adjunct fellow at the Manhattan Institute. He holds Ph.D.s in economics and management science & engineering from Stanford University.

The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not reflect the opinions and beliefs of Fortune.

The trouble with automated market makers

This article first appeared in Cointelegraph.

Automated market makers are a true public good in crypto, enabling genuinely decentralized trading 24/7 and supporting the wider DeFi ecosystems. But they’re not without a host of problems, writes digital economist and academic Christos A. Makridis.

The decentralized finance (DeFi) market has surged since 2021, growing from just over $20 billion to nearly $160 billion as of March 2022, compared with a rise in the total cryptocurrency market from $433 billion to $2.5 trillion over the same period.

While the recent crypto washout in the wake of the collapse of Terra’s LUNA and UST has caused the market value of DeFi to fall almost all the way back down to $60 billion, there is still optimism in the crypto community and the market value will largely return for major crypto assets in the months and years ahead.

The rise of DeFi has been thanks largely to the presence of liquidity made possible through automated market makers (AMM). Whereas centralized exchanges function as a custodian of their customers’ funds and function as a matchmaker for demand and supply, decentralized exchanges (DEX) do not have a custodian.

Instead, peer-to-peer trading, as it was initially designed, is facilitated through a traditional AMM mechanism that says the product of any two assets must always equal some constant. In other words, if Bitcoin and Ether holders put $100 worth in a pool, then the product of the two assets always has to equal $100. If, however, a holder buys more Bitcoin, then the price of Bitcoin rises, and the other side provides more Bitcoin so that the equation balances. The hope is that the pool has many liquidity providers so that there is never a situation where the price of an asset rises so fast that there is insufficient liquidity to facilitate a trade at a reasonable price.

Liquid gold

AMMs have played an integral role in creating liquidity in the overall market. The latest research by Gordon Liao, head of research at Uniswap Labs, and Dan Robinson, head of research at Paradigm, shows that “Uniswap v3 has around 2X greater market depth on average for spot ETH-dollar pairs,” relative to their centralized exchange counterparts, such as Binance and Coinbase.

Here, liquidity is measured using market depth, which refers to how much one asset can be traded for another asset at a given price level. One reason for greater market depth is that AMMs can unlock a more diverse set of passive capital and institutional investors who have different risk profiles.

Since the inception of Uniswap, other AMM designs have emerged, recognizing that the product of two tokens, X and Y, always equaling a constant, K, is not always the most efficient trading strategy — i.e., x*y = K — as Haseeb Qureshi, managing partner at Dragonfly Capital, pointed out in 2020. When a buyer purchases large quantities of X, they can experience slippage, which is when buying a token drives the price up before the order finishes executing it (or selling it drives the price down). Slippage can be costly, especially during times of high trading.

To attract greater liquidity and avoid high slippage rates, DEXs have begun to offer extreme incentives for people to stake tokens in exchange for governance rights (and often a slice of protocol revenue), leading to the “curve wars,” which is a label for the ongoing race to offer better terms of trade. The race to offer better conditions may have some unintended consequences on creating mercenary capital, but the requirement of staking tokens in exchange for governance rights has also created much good.

“Curve wars are representative of the fact that governance has some value… being able to govern how a protocol distributes its incentives even within its own protocol is very powerful: If you force people to commit to make a decision about something in governance, you can create powerful feedback loops,” Kain Warwick, founder of Synthetix, tells Magazine. Warwick has been called affectionately the “father of modern agriculture” for his role in popularizing yield farming.

Front running

Although there are many comparative advantages that DEXs hold over centralized exchanges, most notably greater security and opportunities for community building among token holders, AMMs are imperfect. One of the major limitations to AMMs is the phenomenon of “front running,” which happens when another user places a similar trade as a prospective buyer, but sells it immediately after. Because the transactions are public, and the buyer has to wait until they can get added to the blockchain, others can view them and potentially place bids. Front runners are not trying to execute the trade; rather, they are simply identifying transactions and bidding on them to drive up the price so that they can sell back and earn a profit.

By “sandwiching” the original bid from a buyer with a new bid, the speculator has the effect of extracting value from the transaction. In practice, miners are often the catalysts behind front running, leading to the term “miner extractable value” (MEV), referring to the rents that a third party can extract from the original transaction. These sandwich attacks have largely been automated and implemented by bots, accounting for the bulk of MEV. In an academic paper, Andreas Park, professor of finance at the University of Toronto, said:

“The intrinsic transparency of blockchain operations create a challenge: an attacker can ‘sandwich’ any trade by submitting a transaction that gets processed before the original one and that the attacker reverses after.”

Unfortunately, these attacks are driven by an incentive problem inherent in second-generation blockchains. “Validators may not have sufficiently strong incentives to monitor private pools because this reduces their MEV, so the execution risk for users who join these private pools goes up,” Agostino Capponi, an associate professor of industrial engineering and operations research at Columbia University, explains to Magazine.

Capponi, together with co-authors, elaborate on this in a recent working paper that points out how private pools do not solve this front-running risk or reduce transaction fees — other solutions are required. Capponi continues, “Frontrunning attacks not only lead to financial losses for traders of the DeFi ecosystem, but also congest the network and decrease the aggregate value of blockchain stakeholders.”

Front running can also affect liquidity provision. Price oracles — or mechanisms for providing information on prices — play an essential role in ensuring adequate liquidity exists in the market. If the latest prices are not reflected “on-chain,” then users could front run the price with trades and earn a profit. For example, suppose that the latest price of ETH is not reflected on an exchange, which has it lower. Then, a user could buy ETH at its true price but sell it for potentially more, thereby earning a profit.

While price oracles help ensure adequate liquidity, no amount of liquidity can solve the core issue that transactions on-chain need to be as current as possible. Warwick explains:

“Price oracles do not directly help because they are pushing information on-chain. If you can front run a change in an AMM, you can front run an oracle update, too. Any transaction sequencing is going to introduce the potential for front running.”

That is a challenge that Warwick has personal experience with: In 2019, Synthetix lost billions (technically if not in practice) as a result of an oracle pricing error. Although the funds were returned, the incident demonstrates how costly errors can be.

Look no further than last week when an oracle pricing error on the Mirror Protocol on Luna Classic led to another exploit. Validators on Terra Classic were reporting a price of $0.000122 for both Luna Classic (LUNC) and the newly-launched LUNA when the new LUNA should have been at $9.32. Although the error was eventually fixed — resulting from an outdated version of the oracle software — the “exploiter got away with well over $30 million.”

Challenging business models

AMMs were a revolutionary quantitative mechanism for enabling peer-to-peer trading because they instantaneously settle transactions after they are confirmed and included on the blockchain, and they allow any user to contribute liquidity and any buyer to trade tokens.

However, AMMs have largely relied on expectations of future growth to drive their valuations; the revenue from transaction fees is not only small but also fundamentally linked to the liquidity providers — not the exchange. That is, while Uniswap could take the fees as revenue, the way the smart contracts are written is such that the revenue goes directly to the liquidity providers.

Given that APRs from trade fees might be low, especially in newer AMMs, DEXs rely on offering their governance token for incentives, requiring a high price valuation to onboard and retain liquidity providers. These providers are often “mercenary capital” — going wherever the short-run return is higher. Black swan events, as well as volatility in the market, can damage AMMs beyond repair. For example, volatility in the exchange rate across tokens can lead to a liquidity freeze, according to Capponi and Ruizhe Jia, a Ph.D. candidate at Columbia University.

The reality of the Uniswap business model is not an indictment; it creates incredible value, as evident by recent estimates of its daily trading volume of around $131 million. Rather, that it does not produce revenue is a function of its business model and actually makes Uniswap more of a public good for people in the DeFi community than anything else.

“[AMMs] offer an integral service but don’t adequately capture the value they provide through their token… the current models simply do not provide a transition from pre-revenue speculation to postmoney sustainability,” according to Eric Waisanen and Ethan Wood, co-founders of Hydro Finance, in their April white paper.

Emerging business models

Front running is a problem in large part because pending transactions are generally visible, so a bot can detect it, pay a higher gas fee, and thus, the miner processes the transaction first and impacts market pricing.

One way to avoid this is by hiding the transactions. The use of zero-knowledge proofs and other privacy-preserving solutions is becoming increasingly popular because it is thought to minimize front running and MEV attacks by obfuscating the size and time of transactions that are submitted and verified.

Beyond the hype: NFTs can lead the way in transforming business experiences

This article was first published in Cointelegraph.

Many businesses and big brands have already jumped on the nonfungible token (NFT) bandwagon, including Nike, the National Basketball Association, Pepsi and even Taco Bell. But are these just for the show, or are these NFTs creating value? Much like digital services have become essential for every business in and outside of the technology sector, I believe that tokens — and, specifically, NFTs — are likely to become equally crucial in the emerging Web3 economy for at least two reasons.

First, my view is that NFTs tokenize ideas at the atomistic level, creating rivalry and exclusivity around goods or services. Markets cannot form when goods and services are non-rival — when one person’s consumption does not trade off with another’s — or when they are non-excludable — when it is prohibitively expensive to gate access to a good or service with a price mechanism. NFTs, on the other hand, create rivalry and exclusivity by leveraging smart contracts on the blockchain that deliver NFTs to peoples’ digital wallets when they make a purchase.

Second, I also believe that organizations can use NFTs to efficiently attract and engage different tiers of customers each in their own unique way. Whereas traditional marketing involves selling goods and services at a discount, perhaps for a limited duration of time, NFTs allow brands to target specific customers and reward those who want to engage. For instance, perhaps a fashion brand decides to airdrop discount codes or special offerings that are not available anywhere else to NFT holders. Normally, that would be prohibitively expensive to do at scale, but NFTs provide a way.

Building community

To date, however, most of the NFT applications have been among bigger brands — or at least, so it seems based on media coverage. But either way, smaller organizations and even independent business owners will benefit from NFTs in the years ahead if they invest the time and energy to understand how they work. In fact, just think about the types of businesses that are most likely to benefit from NFTs: It is precisely the smaller organizations that do not have as much of a marketing budget to implement large-scale campaigns and discounts that benefit from the reduction in cost that NFTs provide to target consumers and invite them into a community.

Forget thousands or hundreds of thousands of dollars that go toward buying email lists, creating sales funnels, and conducting surveys and market research. Understanding competition and knowing your consumer is always going to be important, but the landscape is fundamentally different when you think about reaching people on a blockchain based on their opting in and the ability to track what people are actually buying and engaging with in a transparent way.

That’s not to say marketing doesn’t matter. Marketing and visibility do matter insofar as consumers need to learn about the goods and services that are being offered. But the mechanism behind it all is changing — simply having a big budget is not going to have as much bang as a smaller organization or independent business owner who has a clear community of loyal customers. NFTs are simply a new technological mechanism for conveying rival and exclusive goods and services to people who value them — they are not a substitute for creating valuable goods and services in the first place.

Take, for instance, the positive effects of airdrops and governance tokens, which I’ve covered in Cointelegraph Magazine before, citing Gary Vaynerchuk and 3LAU. When used with intentionality and prudence, airdrops are a great way of rewarding early users and building a close community. Then, as momentum builds, the community grows and enters into a new phase.

Enhancing B2B services

Although it’s easy to see how NFTs can enhance the consumer experience, ranging from fashion to content creation, what about businesses that sell services to other businesses?

The principles are the same. Imagine, for example, a consultancy where businesses bid over time with different consultants by buying their NFTs. Then, consultant income would vary based on market demand and supply, providing stronger incentives for each person to carry their weight and add value in the process, as well as an opportunity for businesses to hire their preferred top talent.

The same could go for an institution of higher education where faculty produce NFTs of their content and can license it out to businesses as an additional source of revenue, decreasing the need for growing tuition. Such an approach would also encourage faculty to create content that actually engages with the demands of the marketplace, rather than just talking about them.

Beyond the outward-facing component, think about the impact that tokens could have on the internal labor market of an organization. One of the biggest challenges within organizations is the absence of a price mechanism, dating back to contributions by the late Nobel Laureate Ronald Coase in a 1937 paper, as well as another Nobel Laureate Oliver Williamson in a 1981 paper.

Since prices in a market function to allocate supply and demand, a problem exists within organizations: There is no price! Instead, internal labor markets and organizational decision-making function through hierarchies. But these are inefficient, and there is a wide array of transaction costs — or factors that drive a wedge between what people want and need to exchange.

Such frictions can be resolved through the use of an internal economic system where tokens are used to facilitate exchange. For example, raising an employee’s salary might be a risky bet, but paying them in tokens creates additional skin in the game and incentives to perform since the tokens can only be redeemed if the employee remains in the organization. Obviously creating such an internal ecosystem is not simple, and there are costs and benefits to evaluate in more detail, but at its core, tokens have the potential to fundamentally transform the conversation about transaction costs.

Taking stock

It’s easy to get caught up with the buzz about NFTs — and even fungible tokens — without knowing why. Clearly, there’s something special in the Web3 revolution we’re in, but sometimes it’s hard to put our finger on why. I believe the secret sauce is in the ability for NFTs to create rivalry and exclusivity at the atomistic level around ideas — and that has profound implications worth exploring further.

Remoting

This article first appeared in City Journal.

Analysts debate the proportion of employees that work remotely, but our latest research suggests that it amounts to roughly half of the U.S. workforce.

In late 2020, we launched the Remote Life Survey through Gallup, collecting detailed information about respondents’ employment situation, demographics, and well-being. We found that in October 2020, 31.6 percent of the American workforce always worked from home, while 22.8 percent sometimes or rarely worked from home, for a total of 54.6 percent. These estimates are much higher than those provided by the Bureau of Labor Statistics Current Population Survey, whose data suggest that, during the same month, the proportion of remote workers was closer to 20 percent—a significant discrepancy. If the gap is accurate, and our figure is closer to the truth, then we might be underestimating the proportion of the remote workforce by more than 30 percentage points—meaning that the figure is closer to 50 percent, which lines up with Gallup’s numbers from this past February.

We investigated some competing explanations for the contrasting estimates. Our primary insight is that the BLS data exclude employees who worked remotely pre-pandemic. If people who already worked remotely continue to do so—and many may have transitioned from a hybrid model to fully remote work—then the BLS measure might underestimate the incidence considerably. Further, by limiting respondents’ answers to either “yes” or “no,” the survey might overlook hybrid and indirect forms of remote work.

Correctly estimating the proportion of remote workers is important for understanding the impact of labor-market policy. Some studies have found that hybrid work has a causal and positive effect on productivity and connectivity in the workplace. Remote work is no panacea for structural problems in organizations; it’s a margin for flexibility, not a tool for turning around broken incentives and processes. Corporate culture and the underlying feeling and mood in an organization still matter most.

Still, the rise of remote work has taught us two things. First, federal and state policy should promote choice among employees—not mandates that discourage individual autonomy and bring no tangible public-health benefits. If we have learned anything about the workplace over the past two years, it is that employers and employees alike will adapt their protocols to comply with whatever new mandates governments impose. But the additional time and effort required to adhere to increasingly complex restrictions is burdensome, especially to workers. Employees are more enthused about remote work than are employers, but a tight labor market might pressure firms to be more accommodating. Some workers say that they would be willing to quit their current jobs to find remote work, prompting some companies that had previously committed to in-person work to embrace a hybrid work structure. And some survey evidence suggests that employer plans and employee desires are now starting to converge. Mandates and regulations would only slow the necessary sorting.

Second, localities—especially big cities—must realistically assess the value they provide residents. Over recent decades, superstar cities have benefited greatly from technological and economic conditions that fostered a dense population of knowledge workers. But remote work enables highly skilled people to work at profitable companies in specialized roles without having to pay the high housing costs or embark the on lengthy commutes that characterize many cities. Remote work is now contributing to population decline in large urban counties. Americans seem increasingly keen to leave big cities, and mayors must implement competitive policies to lure people back and retain those who have stayed, such as around arts and cultural amenities and better public schools.

Remote work clearly reduces socialization and collaboration; companies are struggling to identify the optimal model for their organizations and workforces. But despite its flaws, remote work has helped make labor markets more competitive and empowered workers. Local and state governments that fail to provide choice to companies and their employees will hurt themselves in the long run.

Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School and an adjunct fellow at the Manhattan Institute. He holds doctorates in economics and management science & engineering from Stanford University. Adam Ozimek is the chief economist of the Economic Innovation Group (EIG). He holds a doctorate in economics from Temple University.

Airdrops: Building communities or building problems?

This article was originally published in Cointelegraph.

Recent research shows that decentralized exchanges that distribute tokens via airdrops see a big boost in user numbers and transactions. But, is building communities this way just crypto’s version of printing money?

Airdrops — the disbursal of free tokens to early users as a way of rewarding and building momentum — have been around for years but came to prominence thanks to Uniswap’s retroactive largesse in 2020. Nearly anyone who’d used the exchange before a certain date was gifted 400 UNI tokens and those who held their tokens saw a substantial increase.

But, as the market became more mature and more people entered the space, the use cases for airdrops have become more complex. For example, LooksRare more recently sought to siphon off some of OpenSea’s user base by airdropping tokens to new users but with two key rules: They had to have bought or sold a minimum of 3 ETH of NFTs on OpenSea and would need to contribute a new NFT to the LooksRare marketplace.

There have also been notable bad airdrop examples, ranging from a lack of liquidity for Fees.wtf to phishing expeditions whereby recipients of the airdrop are baited into connecting their wallets to a malicious site.

The question for builders is: Are airdrops effective tools for galvanizing new users and building communities?

Building a community

Unless you’re an already established exchange or NFT project, attracting new users is very difficult and handing out free tokens is one way to do it. In the DeFi and DAO space, tokens often come with governance rights that confer the authority to vote on the protocol’s development so airdrops can create both value and skin in the game.

But, how do you avoid devaluing the token and attracting a large group of freeloaders with no interest in contributing apart from receiving the airdrop?

If you do it right, instead of just attracting attention, airdrops can be an effective vehicle for building community. They can reward loyal users and generate buzz and momentum in the market. Many exchanges are simply looking for relevance and traction in decentralized communities. Having something to talk about is a way to stay relevant and build value for the audience.

That’s what Gary Vaynerchuk, chair of VaynerX and creator of VeeFriends, did in 2021 when he announced that every customer who bought 12 print copies of his new leadership book — about twelve essential emotional skills that are integral to his life — would also receive one mystery NFT through an airdrop to their digital wallets. While the book was interesting on its own, the novelty of a mystery NFT coupled with the success and appreciation of his even earlier VeeFriends NFTs created a significant splash and demand.

In fact, Vaynerchuk received over a million pre-orders of the book within a 24-hour period.

Airdrops and scams

Are there scams with airdrops? Scams are inevitable, especially with new technologies and markets where it is harder for new users to cut through the noise.

That means that the more important question is not whether all airdrops are scams, but rather how to work out which airdrops come from meaningful and high-impact projects. Especially for public-facing personalities, like Vaynerchuk, who make their business around legacy and reputation, even a whiff of a scam — or simply failing to deliver value — has costs.

“When a startup fails in Web3, the audience loses money. I don’t know how to run around the earth when the audience has lost money and think that I can do business again,” Vaynerchuk tells Magazine. In other words, if customers who ordered 12 print copies never ended up receiving an NFT or were underwhelmed by the experience, then there would be consequences on Vaynerchuk’s reputation in the marketplace. Indeed, most, if not all, of the customers who bought 12 print copies were doing so to get the NFT, not for the 12 copies.

Reputational effects are sometimes easy to forget in new projects. It’s so easy to get caught up in being busy and dealing with problems that certain commitments can slip by.

However, small projects can attract serious attention if they excite people about their growth, build a community along with a set of common principles and then execute on what they’ve said.

“Value accrues to the community as more people become interested,” Justin “3LAU” Blau tells Magazine. He is, of course, the famed American DJ and co-founder and CEO of the Royal platform with the tagline: “Own music and earn royalties alongside artists.” Since airdrops are one way to accelerate community development, particularly early on, they can be incredibly strategic when done right.

Dropping new music

3LAU has been especially effective in leveraging airdrops with music NFTs.

Shortly after co-founding Royal, which has flipped the business model in the music sector by allowing fans to journey with artists by having rights to future royalties, he announced a surprise airdrop of his latest track “Worst Case” to the 333 users who provided the most referrals. That, in turn, incentivized greater engagement and created value for the holders. The floor price of these NFTs stands at 2 ETH, coming to over $6,200 at current prices.

Although Royal is still in its infancy, there are many opportunities for artists to surprise their fans, inculcate enthusiasm and encourage participation through airdrops. 3LAU says:

“Simply rewarding a community for engaging with your product in a retroactive way is not scammy. It is up to that community to decide what to do.”

That ownership over the music creates a new level of connectivity between fans and the artist. Royal’s business model also provides a way for artists to acquire the capital they need to launch a career without selling themselves out to record labels and other intermediaries who end up making a killing and leaving the artist with very little.

Do these anecdotal experiences line up with the data? In short, yes.

Been asking how we get paid streaming royalties for @join_royal and @3LAU’s “worst case” launch #LDA. Today is the day we got an answer! Airdrops of #Eth! #WorstCase turned out to be best case! #LFG pic.twitter.com/6KE6LB6zzK

— Daniel Marks – PDMarks.Eth (@PDmarks) February 10, 2022

We have the data

In my work as a computational social scientist and economist at Stanford University and Columbia Business School, one of my recent research papers quantitatively investigated the rise of decentralized finance by collecting data on the major crypto exchanges between 2014 and 2021. We documented a much more rapid growth among DEXs and found that decentralized exchanges that did an airdrop exhibit gained an additional 16.1% in their growth rate of market capitalization and 7.3% in their growth rate of transactions, relative to their centralized exchange peers.

Moreover, airdrops had a positive effect on market capitalization and volume growth even after controlling for other factors like when the exchange launched. While time will tell whether these patterns continue, the data supports the strategic use of airdrops.

Further, these results likely underestimate the value of airdrops given that they create more value than just the price associated with the corresponding digital asset. In fact, there could be broader social value if they also serve an educational and community-building purpose.

“Airdropping tokens to new people in the space feels amazing, education through doing helps a lot, helping people get a first NFT and giving exposure to the project is just a nice feeling,” said Vaynerchuk on Twitter. Assuming that the Web3 revolution is inevitable, then airdropping tokens provides an easy way for new users to test the waters.

Money printer goes brrr

And, yet, airdrops don’t come for free — even in the cryptocurrency market, says Vaynerchuk.

“Supply and demand is supply and demand. You are still going to have to create more than short term financial gifts by printing more money.”

Airdrops still have value if they are used sparingly, but the well can be tapped only so many times before they lose their surprise and appeal among prospective or existing users.

In that sense, airdrops might have a big impact once or twice at the launch of a project, but they can exhibit some diminishing marginal returns if artists are not thoughtful.

“Airdrops in and of themselves are fine, but the mechanics of them might not be,” 3LAU says. If a project is going to lead with another identical airdrop, it may be a dud. Rather, pointing toward something new and exciting may continue to drive engagement.

Know your product

Web3, especially DeFi, remains a wild west and the rules of the game have not fully formed. However, the United States Department of Treasury’s Office of Foreign Asset Controls applies regulations on all U.S. companies. “That means projects need to conduct Know Your Customer and Anti-Money Laundering checks on individuals receiving airdrops,” Ivan Ravlich, co-founder and CEO of Hypernet Labs, tells Magazine.

Verifying identities is not easy, but Hypernet Labs has created hypernet.id, a digitally-native and privacy-preserving nonfungible token that is minted to the end user‘s crypto wallet. In this sense, “users can now transact compliantly with blockchain-based decentralization projects, which was impossible in the past,” says Ravlich.

That service — whether by Hypernet Labs or someone else — is what the Web3 community desperately needs. For example, consider the recent confusion between CryptoPunks v1 and v2. Because of a glitch in the first version of CryptoPunks minted in 2017, Larva Labs issued a second version. However, some community members nonetheless created variants of the initial mint with different background colors, selling these NFTs as historical relics which led to a backlash by Larva Labs threatening to pursue legal action. In the presence of privacy-preserving validation mechanisms, these incidents could be entirely avoided.

 While technology is never a panacea, it can be an important tool and airdrops are one such mechanism for creating momentum and cultivating community. However, caution is required: Even when a project owner does not have bad intent, airdrops can be executed poorly and not achieve the desired results.

Ultimately, potential token and NFT holders need to evaluate a project on its merits and believe it actually holds value. Simply accepting tokens from a project without a plan and clear value proposition is, at best, a short-term play and not a long-term wealth creation strategy.

Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School and the chief technology officer and co-founder of Living Opera, a multimedia art-tech Web3 startup. He holds doctorates in economics and management science & engineering from Stanford University. Follow at @living_opera.

NEW BOOK IN PREP! Crypto and the Remote Work Economy

By now, we’ve almost all at least heard about NFTs, crypto, and web3. (If not, read up my writing on livingopera.medium.com with the latest news and thought leadership coming from us at Living Opera—an art-technology startup producing web3 multimedia!) Moreover, there’s a general recognition that at least some dimension of hybrid work is here to stay.

Technology itself is not a panacea to the challenges that we face on both a personal and macro level, but it can be a source of empowerment—if we know how to use it properly.

Unfortunately, technology can be intimidating… even for me—and I’m on my computer working the bulk of each day!

I believe scholars and entrepreneurs have a responsibility to create edifying and enriching use cases of technology and explain how to leverage it for human flourishing. Admittedly, there’s already some of that: Bankless, for example, is a very educational newsletter about crypto, but they are targeting a somewhat savvy crypto audience about detailed news and information.

That’s why I am working on a new book, tentatively titled: “How to Make Decentralized Finance and the Remote Economy Work for You.”

While I will be talking about it more in the coming months, the goal is to educate people with a base knowledge around web3 concepts and equip them with practical and actionable steps that they can take so that they’re empowered, not enslaved, by technology.

Here are example topics:

1. What are cryptocurrencies and other digital assets?

2. What is blockchain and how are transactions recorded on it?

3. What is decentralized finance and how does it differ from centralized finance?

4. How can individuals engage with DeFi even if they don’t have thousands of dollars to invest?

5. What are the patterns around remote work and its incidence?

6. What are examples of new skills and jobs that are becoming available?

7. How can you leverage the remote work economy so that you have multiple streams of income?

It’s not done yet, so am looking forward to incorporating feedback as well! What would you find most helpful, and what areas are not given enough attention in the existing literature?

Here’s the proof culture still comes first in the age of remote work

This article was originally published on Fortune Magazine.

Many companies have announced plans to transition their workforce to a fully, or at least hybrid, remote structure, hoping to raise employee engagement and attract new recruits. However, these working-from-home perks might not be a panacea for deeper, more structural reforms.

Empirical research has long highlighted corporate culture–specifically managers–as the most important determinant of employee engagement and turnover. So, does culture still matter–or has the pandemic shifted underlying employee-employer dynamics?

Working with Professor Jason Schloetzer at Georgetown, we just released the first comprehensive analysis linking remote work with job satisfaction and turnover, drawing on unique data from PayScale.com. We found that hybrid work is associated with higher levels of job satisfaction but has no effect on turnover. However, fully remote work is not linked with an increase in job satisfaction, but with higher levels of intent to leave the organization.

Measures of corporate culture matter significantly more. Suppose, for instance, that an organization could help its employees feel appreciated for the work they do. That matters 10 to 20 times as much as the ability to work remotely on some days. Although other measures of corporate culture vary in their gravity, all matter substantially more than hybrid work availability.

However, there is no doubt now that remote work is here to stay and will provide an added degree of flexibility over the location where employees perform their work. While the percentage of workers who perform their work exclusively from home has declined from 54% to 25% between April 2020 and September 2021, the share of workers who perform at least some work from home has grown from 15% to 20%, according to the latest data from Gallup.

The availability of remote work will not be "a game-changer” for organizations’ ability to raise employee engagement, but it is a complementary tool in their arsenal. Each organization will have to decide how much remote work to allow–and whether different sets of employees should have different options when choosing how and when to do their work. Our research suggests that tasks requiring lower degrees of coordination are much easier to perform remotely and the employees who do so exhibit greater degrees of job satisfaction.

Unlike traditional statistical analyses, ours is the first to control for employees’ perception of their organization’s corporate culture, ranging from managerial quality to the degree of development and training opportunities.

Controlling for these factors, in addition to demographics, is hugely important because the people who can work remotely because of the nature of their job also tend to work in companies that have a higher quality of life and stronger corporate culture. Failing to control for these factors will lead researchers to infer that fully remote arrangements causally affect employee engagement when really, it’s a function of the broader cultural environment.

These results highlight that remote work is not a strategy in and of itself: Corporate culture and managerial quality remain quintessential drivers of employee engagement. Nonetheless, remote work will feed into a broader strategy aimed at improving employee engagement by raising the degree of flexibility in the workplace, particularly with intermediate work options.

Instead of commuting and general slack time in the workplace, employees can allocate that time towards career development and learning activities. Many began taking online courses. Using data from Datacamp, a premier online education platform focused on imparting data science and programming skills, I found that state quarantine policies in the U.S. led to an uptick in online learning.

As companies continue to strategize and implement new plans for 2022, let’s remember that remote work arrangements are not a quick fix for broken or ineffective organizational strategies. By focusing on creating a culture of excellence, appreciation, clear communication, and learning, companies can use remote work as a complementary tool to enable the sort of flexibility that helps organizations to flourish and generate value.

Christos A. Makridis is a research affiliate at Stanford University’s Digital Economy Lab and Columbia Business School’s Chazen Institute and a senior adviser at Gallup. He holds dual doctorates in economics and management science & engineering from Stanford University.

A Rare Chance of Bipartisanship

This article was originally published on City Journal.

In this era of intense partisanship, issues that unite Republicans and Democrats are hard to come by, but reauthorization of the Violence Against Women Act could be one. Addressing violence against women and human trafficking are issues that have historically united both parties, dating back to the passage of VAWA in 1994, sponsored by then-Senator Joseph Biden and strongly supported by Senator Bob Dole, who died last month. Legislators, however, should take a critical view of several suggested amendments to the law that could jeopardize safety for victims in various dangerous situations.

Physical assaults and human trafficking have soared during the Covid-19 pandemic. State and local lockdowns have led people to spend more time on social media, which means increased exposure, especially for children, to traffickers. And lockdowns forced people in abusive relationships to spend even more time with their partners and curtailed opportunities to move out and earn money on their own. For those already in troubled situations, the lockdowns made life even more dangerous.

According to the National Coalition Against Domestic Violence, more than 10 million people annually in the United States—nearly 20 people per minute—are physically abused by an intimate partner. Thirty-three percent of women have experienced some form of physical violence from an intimate partner, while 25 percent of women have experienced some form of severe violence. Additional research has found that these patterns accelerated during the pandemic by 10 percent to 20 percent. These trends have put additional burdens on shelter and advocacy groups.

The Violence Against Women Act provides funding and resources for these groups, but the funding is currently in limbo. The House reauthorized VAWA in 2019, but the bill remains mired in the Senate—and the path to renewal is not as straightforward as it might seem. Republicans have identified important concerns about amendments in the legislation authorized by the House. For example, the bill contains a section on “restorative practice.” As Iowa senator Joni Ernst explains, this part funds programs that let abusers negotiate with their victims for the purpose of “collectively seeking accountability from the accused.” Restorative practice poses substantial risks for victims, ranging from producing new threats to revisiting past trauma.

The National Center on Sexual Exploitation has underscored similar concerns about the restorative-practice section of the bill, as well as other issues. Though some have argued in favor of restorative practice, these methods have not been tested on a large enough scale to determine their advisability. An alternative, compromise approach would be to direct federal funds to programs focusing on prevention. This could include applications that mitigate the risk of human trafficking—like Canopy, a software plugin that lets parents block inappropriate content on their children’s devices—or community programs that contribute to building stronger families. Preventing a crisis is easier than dealing with one after the fact.

Many senators are ready to negotiate in good faith over these and other matters, but policymakers on both sides of the aisle need to set aside their talking points and work toward a tactical reauthorization. As a new year begins, legislators have an opportunity to honor Dole’s legacy by reauthorizing VAWA and standing up for a cause that all Americans can support.
Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School, and an adjunct fellow at the Manhattan Institute. He holds dual doctorates in economics and management science & engineering from Stanford University.

School closures have been made with politics in mind — not science

This article was originally published on the New York Post with Corey DeAngelis.

The long-term closing of schools, and the harm it did to children nationwide, was a decision based not on health, but on politics — thanks to teachers unions and the Democratic politicians they fund.

A study by researchers at Michigan State University found that when governors left it up to districts whether to have in-person education in the fall of 2020, the “decisions were more tied to local political partisanship and union strength than to COVID-19 severity.”

This despite the fact that politicians already knew children were less at risk for COVID.

Follow the science? More like follow the political science.

Mental, physical harm

Freedom of Information Act documents showed major teachers unions lobbied the Centers for Disease Control and Prevention on school reopenings. In fact, e-mails The Post acquired revealed that the CDC adopted Randi Weingarten’s American Federation of Teachers’ suggested language for this guidance nearly verbatim at least twice. Government officials were also told to factor teachers union contract negotiations into their reopening guidance. 

These union-induced school closures harm students academically, mentally and physically, with virtually no reduction in overall coronavirus transmission or child mortality. 

A study published in the National Bureau of Economic Research working-paper series, for example, found that math learning loss was “10.1 percentage points smaller for districts fully in-person” relative to remote districts in 2020-21. 

A study published in the Journal of the American Medical Association found that “attending school remotely during the COVID-19 pandemic was associated with disproportionate mental health consequences for older and Black and Hispanic children as well as children from families with lower income.”

The teachers unions just might have overplayed their hand. 

Our new study from the group I work for, the American Federation for Children, suggests the push to close public schools backfired for power-hungry unions by enticing families to vote with their feet: 

We find that — even independent of COVID risk and several other local demographic factors — school closures have significantly shifted families toward homeschooling and private education.

We found that a full transition from in-person to remote instruction was associated with a 2.3 percentage point increase in households homeschooling. 

These estimated effects cannot be accounted for by differences across states in demographic factors, infection or death rates, among many other variables. Moreover, that the proportion of households who homeschool their children in 2021 is roughly double the pre-pandemic rate — even after many schools returned to in-person learning — shows that the uptick in homeschooling is not just a fad.

Another study found some evidence to suggest that public-school remote instruction was associated with private-school enrollment boosts. Private schools have been much more likely than public schools to provide in-person services and staying open for business probably attracted new customers. A recent study published in the Journal of School Choice similarly found that private schools in areas with closed public-school districts were more likely to experience enrollment increases in fall 2020.

Meanwhile, research by Cambridge University Press found that public-school districts located in areas with more Catholic private schools were more likely to reopen in person in fall 2020, suggesting incentives play a role in these decisions.

The latest data from 42 states also indicate that public charter schools, which must compete for their customers, experienced a 7.1% boost in enrollment in 2020-21, whereas district-run public schools lost 3.3%, or about 1.5 million, of their students.

New York City district school enrollment dropped by about 64,000 students, or about 4.7 percent, from pre-pandemic levels, whereas charter school enrollment increased 3.2% this school year. That’s bad news for the district because public schools are funded based on enrollment counts. Perhaps ironically, the news is doubly bad for the teachers unions, considering the recent surge in support for — and expansion of — school choice. 

Now it’s happening all over again. 

More than 5,500 US public schools closed each of the first two weeks of 2022, according to school information aggregator Burbio. 

Nearly two years after “two weeks to slow the spread,” many teachers unions are still fighting to close public schools. Factions within New York City’s largest teachers union, the United Federation of Teachers, pushed to close schools for in-person instruction earlier this month. Some union members even filed a lawsuit to close schools for “two weeks” again. 

The most advantaged parents are more likely to have the resources to send their children to private schools when the public-school system fails them. Funding students directly with vouchers would be an equalizer by allowing more families to access educational opportunities. 

The latest Census Bureau data show New York City public schools spent more than $35,000 per student in 2019. It’s time to give that money directly to families so they can find alternatives. 
The fact that the closing of schools was a political decision, based on the symbiotic relationship between teachers unions and the Democratic Party, shows why school choice is so important. Don’t let them decide for us how and where our children learn. 

Corey DeAngelis is the national director of research at the American Federation for Children, an adjunct scholar at Cato Institute and a senior fellow at Reason Foundation. Christos A. Makridis is a research affiliate at Stanford University and Columbia Business School and an adjunct fellow at the Manhattan Institute.

Remote Instruction Is Bad for Mom and Dad

This article was originally published on the Wall Street Journal with Corey DeAngelis.

We’ve heard a lot about how school closings affect children, but what about parents left scrambling for child care and in-person learning options? In 2020, such disruptions disproportionately caused women to leave the labor market to take care of their children at home.

Using Census Bureau survey data, we found that pandemic-induced remote instruction made several mental-health outcomes worse for parents of school-age children. A 10-percentage-point increase in the share of public school districts going fully remote in a state was associated with about a 1-point increase in the proportion of parents reporting feelings of anxiety most days in the previous week. The same increase in remote instruction was associated with a 0.73-point increase in the proportion being worried, a 0.61-point increase in being depressed, and a 0.55-point increase in losing interest in daily activities.

… (continue reading on WSJ)

Social Capital and Covid

This article originally appeared in City Journal.

Covid-19 can be a deadly virus, but that should not blind us to the reality that the pandemic and its associated shutdowns have had other bad effects too. Prolonged and severe state quarantine policies not only did little to stop transmission of the virus but also led to a mass exodus of residents, an uptick in crime, and a severe deterioration in mental health. But some cities have recovered much faster than others and experienced much weaker deteriorations in their economic and social flourishing. Why?

Recent research that I conducted with Huggy Rao at Stanford University and Sunasir Dutta at University of Minnesota may help answer. We introduce a new measure of social capital, called “Third Places Foot-traffic Concentration” (TPFC), and use it to examine how counties fared over the Covid-19 pandemic. Using anonymized cell-phone-location data, we track the composition and frequency of visits to “third places”—cafes, diners, or restaurants, destinations that provide a neutral ground for strangers to interact and expose people to a wider set of influences. While researchers have long been interested in third places as catalysts for social capital, past research has struggled to measure these interactions at scale.

We find that counties with higher levels of TPFC saw fewer personal bankruptcies, Covid infections, and Covid deaths. Moving a county roughly one standard deviation in the TPFC index—which amounts to rising from roughly the tenth percentile to below the median in the distribution of our 1,136 counties—is associated with a 0.43 percent decline in personal bankruptcies, a 0.39 percent decline in Covid-19 infections, and a 0.30 percent decline in Covid-19 deaths. These results obtain even after controlling for many demographic differences.

Social interaction may matter more in some locations than in others. A rise in TPFC has a larger effect on personal bankruptcy in counties that are more racially heterogenous (30 percent) and have less income inequality (40 percent). In other words, social interaction in highly homogenous areas was associated with fewer benefits; the same holds for Covid-19 outcomes.

These results corroborate other research that has found, using a measure from Congress’s Joint Economic Committee, that social capital provided a buffer against the surge in Covid-19 cases and deaths during the height of the pandemic. But our measure of TPFC supervenes upon social interaction—exactly what state quarantines were intended to stop. In this sense, our results not only are consistent with past evidence about the ineffectiveness of state quarantine policies but also suggest that social interaction has beneficial effects on net.

Many cities faced significant challenges before the pandemic, but state and local policies made the situation worse. Recovering from the pandemic requires interaction, not isolation.

All I Want for Christmas – Is an NFT

This article originally appeared in Finance Magnates.

Holiday sales in the United States for 2021 are expected to generate $834.4 billion. Additionally, the average American anticipates buying $942 in Christmas gifts and a third of Americans anticipate spending over $1,000, according to 2019 numbers. The holiday season is big.

But, with the expansion of the digital economy and the increasing popularity of non-fungible tokens (NFTs) comes an entirely new set of possibilities, gifting digital assets. Already, there has been talk about gifting digital assets with the click of a button, rather than depending on large shipments of physical products to come through when there are such profound international supply chain issues.

How Would NFT Gifts Work?

Just like any physical gift, digital assets can confer similar, or even more, levels of excitement, wonder and appreciation. Whereas physical gifts are inherently constrained by the laws of physics, much more is possible in the digital realm since the creator can integrate multiple forms of media.

Consider the simplest illustration: buying a portrait as a gift. The same can be obtained with an NFT. While these have often been discussed in the context of large-scale digital galleries, they can be easily displayed inside an apartment or house. If you have a smart TV, you can display digital art on it when you’re not watching TV.

Take that example one step further. Instead of just gifting a friend or family member an NFT that is in the form of a digital art piece, what if the NFT embedded both audio and art? For example, the NFT could have Silent Night playing and simultaneously displaying a creative rendition of the sky with the stars. A picture is worth a thousand words, but a picture and audio are worth many more.

Digital assets are not constrained in the same way that physical goods are. With the emergence of virtual reality and the metaverse, you could even gift someone virtual real estate or amenities for their digital identity. The same amenities that are available in the physical world would also be available digitally, and much more. For instance, suppose you know your friend loves the outdoors. Then, you could gift your friend virtual real estate of a forest containing all sorts of animals, plants, trees and adventurous travel ways. Clearly, that wouldn’t be possible in our physical reality, but there is nothing stopping that possibility from being a (digital) reality soon.

Advantages of NFT Gifts

An obvious reason for an nft gift is that it can confer an even more multidimensional experience for the user than a physical gift, or, at least, just as good as one in many cases (e.g., a digital art piece). However, another advantage is that NFTs can appreciate over time.

For instance, suppose you gift a friend an NFT of an exciting and emerging artist. Assuming your intuition is right, that NFT would grow considerably in value. If Jack Dorsey’s first tweet can sell for $2.5 million, and it does not confer any tangible value, then how much more could an artistic contribution grow in value over time? Compare that with an Amazon gift card that can only be redeemed at a given price, its upside is fundamentally fixed.

Many critics have complained that there is too much speculation in the NFT market. But, what market does not have speculation? Anytime there is a fundamental innovation, whether it’s electricity or the internet, there is a surge of buzz and interest that follows.

Instead, the better question is whether NFTs have value-creating properties. If so, then the question is whether we can identify prudent digital assets that might grow in value. Or, at the very least, we can purchase NFTs that confer some immediate value, whether it’s a beautiful art piece or rights to an idea or tickets to a future product launch.

The NFT and blockchain revolution are changing a lot, even the way we give gifts during holidays. Before following your typical routine this Christmas, consider searching for some NFTs that could make nice gifts for friends and family. The possibilities will only continue to grow in the years ahead!

Christos A. Makridis, research professor at Arizona State University, a digital fellow at Stanford University, and Chief Technology Officer and Head of research at Living Opera.

Non-Fungible Tokens Are Transforming the Artistic Marketplace

The article originally appeared in Finance Magnates.

Two weeks ago, New York City hosted the largest blockchain conference on non-fungible tokens (NFTs), drawing over 10,000 attendees and 500 speakers. Despite all the buzz, the concept of an NFT is simply: they are digital certificates of ownership on an immutable digital ledger, meaning that the certificate is publicly accessible and unchangeable. And yet, such a simple concept is beginning to transform the way that content creators produce and disseminate their content.

Blockchain, much like artificial intelligence, is a general-purpose technology, meaning that its effects are not constrained to a single sector. Instead, content creators across the board can leverage the technology through the ‘minting’, or issuance, of NFTs on a blockchain of their choosing, forever marking their ownership over an idea, product, or service that can be freely traded.

It should come as no surprise that NFTs have the potential to fundamentally transform the way that artists sell their content and connect with their fans. Rather than having to rely on large record labels or influential institutions, artists can simply mint an NFT of their content, whether an album or a portrait, and trade it. That does not mean selling is easy, artists still need to have a personal brand and a strategy for disseminating their NFTs at scale and generating visibility, but NFTs nonetheless disrupt the historical reliance on a third party to independently verify artists’ work.

MakersPlace is one such organization that provides a platform for artists to showcase and sell their creations to a larger audience. Digital art can be uploaded and sold to ensure that the original creations remain authentic.

Such a platform not only allows artists to reach a wider audience without a middleman, but it also provides an opportunity for artists to interact with one another and build a community at scale. “These communities should be provided relevant education and shown the ropes for what digital ownership can mean for them,” said Greg Harder from MakersPlace.

An alternative to the expansion of curated marketplaces, like MakersPlace, is the emergence of crypto fine arts galleries, like Lydian Slater in New York City. Even though some artists are often excited about the prospect of minting and marketing their own work, others prefer to focus purely on the artwork and leave the marketing to an outside agency. “We started this project to help bridge the gap between the traditional and crypto art worlds… Our goal is to give our artists the tools to mint their own NFTs while providing as much support as they want in marketing, contextualizing and selling their work,” said Alexandro Silver Durán, the Founder and Director of Lydian Stater.

And yet, NFTs have the potential to do much more than simply establish and trade ownership over different types of content. In fact, some of the most exciting applications of NFTs appear to be the combination of different media modalities, ranging from digital art to sound.

Think about it this way. Most artists have created unidimensional content so far. That means a singer simply creates an audio clip or a designer creates a digital graphic. However, artists have the potential to link multiple forms of media together in an NFT and provide differential experiences based on their willingness and ability to pay. Whereas one consumer might only want to hear audio, another might find a combination of digital art and audio more valuable because they can put the digital art on their desktop or create a print in their house. “This combination of multimedia will deliver more meaningful and memorable experiences so that consumers can fully appreciate and engage with the art,” said Soula Parassidis, a world-class opera singer and CEO/Founder of Living Opera,

How much can creators make from these art NFTs? While some NFTs may sell for millions because they cater to the idiosyncratic tastes of certain high net-worth individuals, good art generally already has a large market. For example, Sam Brukhman, a violinist by trade, gathered a team of artists, designers, and producers to create Betty’s Notebook by Verdigris Music sold for $375,000.

The 21-minute programmable art experience is based on Amelia Earhart’s final distress calls in her solo flight across the Atlantic Ocean, containing five unique musical pieces where each piece is divided into four ‘stems’. Each stem contains three audio-visual states that the owner can interact with by altering the musical texture, timbre, and narrative. As the listener toggles between states, the album art visually shifts to reflect the listener’s change, making the art inherently interactive. The master version also contains a limited-edition physical radio piece. “For the first time ever, NFTs are creating an entirely new asset class for musicians… musicians now have the option to sell an ‘original’ piece of music in addition to ‘prints’,” according to Brukhman.

Admittedly, there is still a lot of speculation in the sector. But, any good technology drums up so much interest that everyone piles on before the market eventually settles down. The big question is whether NFTs allow for value creation, and the answer to that is unambiguously ‘yes’.

Christos A. Makridis, research professor at Arizona State University, a digital fellow at Stanford University, and Chief Technology Officer and Head of research at Living Opera.

Pandemic restrictions were a blow to religious liberty

Originally posted in the New York Post

A year ago this month, Orthodox Jews from Brooklyn were taking to the streets in fiery protests against then-Gov. Andrew Cuomo’s restrictions on religious services, ultimately seeing those rules struck down by the Supreme Court ahead of Hanukkah and Christmas. 

Later, at Easter time, a pastor in Alberta would be arrested and held in jail for holding illegal church services, coming out of custody to warn, “They are doing this to me. They are going to come after you. It’s just a matter of time.” 

These are just two of many stories of the overlooked struggle of religious leaders to confront shutdowns that have hindered religious celebration throughout the past 18 months. With another holiday season on the horizon, it’s worth reflecting on the toll congregants have paid when houses of worship are shuttered. New research paints an alarming picture. 

Up until roughly April 2021, between 60 and 80 percent of US states had either numeric or percentage cap restrictions on houses of worship. In some cases, the restrictions were so severe that church meetings, regardless of size, were not permitted. Although many churches applied for exemptions, and courts ultimately sided with many of them, 39 percent of households were not able to attend worship regularly as of August 2020 (that’s about 128 million Americans, based on 2019 census estimates). 

In a newly released paper of mine, together with new data made available through the Becket Fund for Religious Liberty, I quantify the effects of state restrictions on houses of worship on individuals’ subjective well-being. Using data from Gallup between March 2020 and June 2021, I compare measures of well-being among religious adherents and their counterparts before versus after the adoption of restrictions within their states. 

I find that pandemic restrictions significantly reduced religious peoples’ well-being. These effects persisted even after controlling for a wide array of demographic features, such as age and education, and other characteristics, such as income and industry. For example, the restrictions led to a 4.1 percentage point rise in self-isolation among the religious, relative to their counterparts. And they reduced life satisfaction by 0.09 standard deviations, an effect nearly twice as large as the male-female difference in the same measure. 

My research finds that these effects were driven by increases in social isolation. Given that people who regularly worship build their community among those they worship with, a sudden and complete removal of in-person interaction led to a substantial decline in their well-being. These costs were not just caused by any unique economic challenges of the pandemic that religious people might have faced. For example, I did not find any systematic disparate effect of the restrictions on personal finances, job preparedness, or economic sentiment. 

Of all the unequal impacts of the pandemic, the costs of state and local restrictions that fell squarely on religious households seem underappreciated. Although everyone felt the effects of national and state quarantines, and Americans struggled with mental health more broadly, my paper shows that religious adherents, especially Catholics or other Christians, experienced unique harm. 

Even more troubling is that the costs of shutdowns for places of worship were not limited to the congregants. Evidence from a Baylor University study led up by Byron Johnson shows that faith-based organizations shoulder the bulk of the homelessness burden in cities, caring for the least fortunate. In this sense, cutting off in-person worship simultaneously cuts off one of the primary ways that houses of worship serve their broader communities. 

These restrictions may seem unique to the pandemic, but they’re not. They come at a time when, by various measures, religious liberty is being attacked. My other research, for example, finds that the United States experienced a 35.1 percent decline in religious freedom overall between 2006 and 2018, based on indices and polling gathered from across the world. (Examples include the silencing of Christian student Chike Uzuegbunam, who was barred from discussing the Gospel in a “free speech zone” at Georgia College. Ultimately the Supreme Court sided with Uzuegbunam in a 8-1 decision authored by Justice Clarence Thomas, but the situation shouldn’t have warranted litigating in the first place.) 

That trend is not unique to just the United States. In fact, the decline in religious freedom is concentrated among countries that historically have ranked high in economic freedom. 

As churches start to reopen, the need for Zoom Masses and Facebook worship services will hopefully come to an end, and congregants will once again enjoy the benefits of authentic in-person fellowship. But Americans taking time to reflect, particularly as Thanksgiving approaches, on their First Amendment right to worship as they deem fit, should hold fast to the lessons of the last year. 

It’s become a trope, but houses of worship should never again be indefinitely closed, particularly when other establishments, such as bars and marijuana dispensaries, are allowed to remain open. These indefinite restrictions on freedom contradict the ideals on which America was founded — and we now have the data to prove they deteriorate social capital and mental health, too. 

Christos A. Makridis is a research professor at Arizona State University, a non-resident fellow at Baylor Universities Institute for Studies of Religion and an adjunct scholar at the Manhattan Institute.