Dapper Labs: The Leader of the Sports x NFT Space
Dapper Labs: The Leader of the Sports x NFT Space
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Executive Brief: Today’s newsletter discusses Dapper Labs’ rise to becoming a leader in the NFT space. I dig into its history, growth, NFTs, and how NBA Top Shot is spring-boarding the sports NFT space.
Dapper Labs’ Origin Story
Vancouver-based Dapper Labs was founded in 2018 by CEO Roham Gharegozlou as the company developed its non-fungible token (NFT) platform for its wildly popular CryptoKitties NFTs. At the time, CryptoKitties were hosted on the Ethereum blockchain. However, due to congestion and slow-processing times on the Ethereum chain, Dapper Labs was founded and created its blockchain, named Flow. Dapper Labs would control Flow and could better control the environmental factors instead of relying on a third-party blockchain. Therein, Dapper Labs was born.
What Are NFTs?
Before diving into Dapper Labs’ business, I will explain NFTs from a high level. NFTs are non-fungible tokens, a new but fast-growing phenomenon in the crypto industry. They are digital tokens representing ownership of a virtual item, like a piece of art. Ownership is tracked on the blockchain, a digital ledger of the transactions.
NFTs aren’t “fungible” (hence, non-fungible tokens), unlike bitcoin and other cryptocurrencies. This means they cannot be exchanged with one another like dollars, gold, or bitcoin. Each NFT is unique and acts as a collector’s item that cannot be duplicated – however, the media and content that comprises the NFT can be viewed by anyone else on the internet. NFTs are essentially collectibles or memorabilia, like in the real world, but you can utilize them for more things like a game. Additionally, because NFTs are hosted on the blockchain, and each transaction is recorded on the digital ledger, you can always prove your NFT is the authentic original, which also lends itself to other ways for individuals to make money from trading.
The pitch for the long-term success of NFTs is that they allow creators and users to verify the authenticity of the collectible for its entire life cycle forever. NFTs allow internet users from around the world to participate. They also provide creators with avenues to earn long-term royalties on every trade of the NFT, among other valuable characteristics.
The main incentive for collectors of NFTs is that there is a proven scarcity to the digital collectible because everything is recorded on the blockchain’s digital ledger. For collectibles to survive, you need to be able to authenticate them, there needs to be scarcity, and there needs to be a market to value them.
Prices for NFTs rocketed in 2021, with sales reaching a record $2.5 billion in the first half of 2021. Notable high-profile transactions include a record $69 million piece of art sold by digital artist Beeple and the $2.9 million sale of the first-ever tweet by former Twitter CEO Jack Dorsey. Crypto and blockchain startups have raised almost $19 billion in venture funding in 2021, nearly triple the $6.4 million raised in 2020, per Pitchbook.
NFTs and the Sports World
NFT utility cases develop weekly it seems. One of the major players in that growth is the sports world. Several organizations are developing NFTs projects and other crypto assets to generate additional revenue for their companies. Over the past couple of years, English Premier League teams have released “fan tokens” allowing holders to vote on minor club decisions and receive certain perks.
In 2021, the National Football League experimented with NFTs by releasing virtual commemorative ticket NFTs to fans. For the regular season, they released commemorative tickets to fans of all teams. Then, they did the same release for fans of playoff teams, at a higher price, of course.
Dapper Labs’ Leads the Sports NFTs Space
Dapper Labs is a leader in the space at the infrastructure level with the Flow blockchain and at the application layer with NBA Top Shot.
While creating the Flow blockchain to avoid the congestion problems of the Ethereum blockchain faced by CryptoKitties, Dapper Labs struck a partnership with the NBA to produce NBA Top Shot. NBA Top Shot is a joint venture between Dapper Labs and the National Basketball Association (NBA). After securing an agreement with the National Basketball Players Association (NBPA), Dapper Labs and the NBA reinvented the sports trading card and did it on the company’s Flow blockchain.
NBA Top Shot launched in May 2020 at an invitation-only debut among enthusiasts. By the public launch date in October 2020, Top Shot had already registered 17,000 users to test its Flow blockchain.
On NBA Top Shot, buyers of an NFT receive a limited number of copies of a game highlight, a brief video of gameplay, termed a “Moment.” The platform displays the moment in a frame that mimics a physical trading card, or the owner can “showcase” it along with others in their collection in a display on the website. Moments are sold in blink packs like traditional trading cards. Players can buy and sell the cards (moments) with other players – the value of the digital collectibles can go up and down over time too. The NBA licenses the moments to Dapper Labs, so the NBA receives royalties on each transaction.
NBA Top Shot has seen exponential growth in the past year, with $780 million worth of collectible traded on the platform across 1.1 million registered users in 2021 as of September 2021. Since launching NBA Top Shot in 2020, Dapper Labs has secured partnership agreements with the Ultimate Fighting Championship (UFC), the National Football League (NFL), and LaLiga, Spain’s top football (soccer) league, including teams like Real Madrid and Barcelona. Dapper Labs will host both sports’ NFT collectibles on its Flow blockchain. In April 2021, Dapper Labs became confident enough in its Flow blockchain through NBA Top Shot to move almost 100,000 CryptoKitty investors away from Ethereum and Flow.
Dapper Labs Funding & Its Edge
Dapper Labs has raised eight rounds of funding totalling $607.5 million. The company’s most recent valuation in September 2021 valued the company at $7.6 billion. Lead investors include GV, Bond, GIC, Coatue, Andreessen Horowitz, Version One Ventures, North Island Ventures, blisce/, June Fund, True Capital Management.
Dapper Labs made a great decision when it developed its blockchain Flow—doing so removed reliance on outside parties for its service to function. Slow processing times kill user buy-in, and the NFT space is crowded with competitors and companies trying to land space in the marketplace. A slow pace can kill a company in this space. Dapper Labs dealt with various hiccups early with NBA Top Shot by developing Flow. However, long-term, the move should play out beautifully. Flow allows Dapper Labs to optimize scalability and practical use cases with its chosen entity, including the NBA, UFC, NFL, and LaLiga. Further, the Flow blockchain is open to third-party developers allowing for innovation. Flow is currently home to more than 3,000 brand projects as of September 2021.
The company announced it plans to invest part of recent funding into users’ new experiences, like paid trips to games for NFT purchasers. It also expects to use the funding to develop its mobile products, connecting the digital collecting experience with the live game experience or social media. The company’s CEO has repeatedly stated that his goal is to put a crypto wallet in everybody’s pocket.
Dapper Labs will deal with competitors. However, most alleged competitors are building businesses on different tech stacks. For example, Paris-based fantasy sports platform Sorare raised $680 million in September as it aims to create a fantasy football (soccer) platform using NFTs on the Ethereum blockchain. Fortunately, Sorare is focused on fantasy sports, whereas Dapper Labs focuses on capturing video and collectibles. As the markets shape out in the space, many of these companies will likely complement each other to start until it’s time to scale up. 10-15 years down the road might be more chaotic as the prominent players battle it out for growth and scale. But for now, company’s like Dapper Labs are so early that they should survive building their current verticals for a while as they ride out their profitability.
Thank you for reading. Have a great day, and we’ll talk next week!
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Kendal
Question of the Day
Do you own any NFTs? If yes, what’s your favourite and why? If not, do you plan to?
Games of the Week
NBA
Mon, January 17th: Chicago Bulls @ Memphis Grizzlies at 3:30 p.m. (E.T.)
Wed, January 19th: Memphis Grizzlies @ Milwaukee Bucks at 8:00 p.m. (E.T.)
NHL
Mon, January 17th: Minnesota Wild @ Colorado Avalanche at 3:00 p.m. (E.T.)
Tues, January 18th: Carolina Hurricanes @ Boston Bruins at 7:00 p.m. (E.T.)
NFL
Sat, January 22nd: Cincinnati Bengals @ Tennessee Titans at 4:30 p.m. (E.T.)
Sat, January 22nd: San Francisco 49ers @ Green Bay Packers at 8:15 p.m. (E.T.)
Sun, January 23rd: Arizona Cardinals/L.A. Rams @ Tampa Bay Buccaneers at 3:00 p.m. (E.T.)
Sun, January 23rd: Buffalo Bills @ Kansas City Chiefs at 6:30 p.m. (E.T.)