$100,000 to buy a string of code, the sports card business enters the blockchain era

This article was published by Lazy Bear Sports, authored by Zhuang Kunchao.

Letting players spend $75,000 to buy a digital trading card of a star player, where the star exists but the card is essentially just a string of code, sounds absolutely crazy for the NBA Top Shot business.

On January 23, a digital trading card of LeBron James was sold for $75,000 on the blockchain game NBA Top Shot, setting a trading record for the platform. However, just two days later, this record was broken by Zion Williamson's $100,000 sale.

There are many "crazy" buyers, such as "Pranksy," a player on NBA Top Shot. In an interview with The Action Network, Pranksy revealed that he has spent at least $800,000 on the platform, with some trading cards already sold for a total of $1 million, while the remaining cards are valued at around $3.1 million.

NBA Top Shot was jointly developed by game studio Dapper Labs, the NBA, and the players' union, with a test version launched in August 2020. The price of each trading card pack ranges from $9 to $230, influenced by factors such as player popularity and rarity. It is worth mentioning that NBA Top Shot's trading card packs are mostly sold for a limited time, adding excitement for players.

Dapper Labs previously launched the blockchain game CryptoKitties, which was once considered the most popular blockchain game. Thanks to the success of CryptoKitties and the endorsement from NBA players, Dapper Labs gained a certain reputation in the industry, helping them attract capital. Dapper Labs has completed four rounds of financing, raising a total of $52.5 million.

▲ CryptoKitties, launched by Dapper Labs, was once a huge hit.

"The investment institutions behind Dapper Labs are very prestigious, covering some of the top investment firms in cryptocurrency, such as Coinbase Ventures and a16z, and they have also received investments from NBA stars like Spencer Dinwiddie and Andre Iguodala," NBA Top Shot investor Steven Wei told Lazy Bear Sports. "Additionally, I have high hopes for the Flow team, which is the development team behind CryptoKitties, an early star application on the Ethereum blockchain."

With the push from players like Pranksy, the total trading volume on NBA Top Shot since its launch has approached $20 million, and the trading volume in January 2021 has even surpassed $1.5 million so far. "The trading card pack we launched on Christmas sold out in less than a minute," said Dapper Labs' Vice President of Marketing, Caty Tedman, in an interview with Bloomberg.

Behind the popularity of NBA Top Shot is the developers' resolution of some pain points associated with physical trading cards and other digital trading cards. For trading card players, physical cards face storage issues such as oxidation and damage, and the current grading system for trading cards cannot completely eliminate subjective factors, leading to the possibility of "inflated" ratings. Of course, digital trading cards also have their own issues, such as security; if they encounter malicious attacks, the mass and disorderly issuance of trading cards could collapse their valuation and circulation system.

▲ NBA Top Shot uses Flow blockchain technology.

However, Pranksy's willingness to invest $800,000 in NBA Top Shot also proves that the game's security is not low. Dapper Labs developed NBA Top Shot based on Flow blockchain technology, which employs "Secret Knowledge Proof of Knowledge" (SPoCK) technology and pipeline architecture design, featuring speed, decentralization, developer-friendliness, and high throughput.

Moreover, NBA Top Shot's trading cards are classified as "Non-fungible Tokens" (NFTs), with each trading card having its unique, non-reproducible identification information, ensuring the authenticity of the trading cards. "In the Flow smart contract, users truly own their non-fungible tokens under their name," Steven explained to Lazy Bear Sports.

This is the most crucial aspect of the value system for trading cards. Only a genuine trading card can have its rarity assessed and recognized, thereby forming its intrinsic value. In addition to the intrinsic value of the trading card itself, the emotional value between players and trading cards also significantly impacts their worth. For fans of LeBron James, a trading card capturing a memorable moment of their idol will undoubtedly resonate more strongly, making them willing to pay a high price for it.

Furthermore, compared to other trading cards, NBA Top Shot's trading cards offer greater playability. These trading cards capture a moment from a game, rather than just being a photo. Additionally, they include elements such as which game the moment is from, the player's statistics from that game, and average statistics for the season. This type of trading card provides a stronger visual impact for players and is undoubtedly more appealing to young players who enjoy novelty.

In addition to traditional collecting and trading functions, NBA Top Shot also plans to add nurturing features for its trading cards. Dapper Labs intends to incorporate a "Hardcourt" 3D game mode, allowing players to freely form teams and upgrade player abilities, providing them with a more immersive experience in the game and further enhancing the entertainment value of the trading cards.

▲ Using LeBron's dunking ability to upgrade Stephen Curry is a potential new gameplay for NBA Top Shot trading cards.

"If I have a bunch of trading cards featuring LeBron's dunk moments, I can use them to enhance Stephen Curry's dunking ability, making his dunks as impressive as LeBron's," said Dapper Labs CEO Roham Gharegozlou in an interview with CoinDesk. However, he did not elaborate on how this would be implemented.

It is noteworthy that NBA Top Shot's popularity is not only due to its security and diverse gameplay; the pandemic has also been a significant driving force. During the pandemic, many people are spending more time at home, and revisiting childhood memories through trading cards is a great way to pass the time. Parents can also play with their children, nurturing the next generation of trading card players.

Additionally, due to the pandemic, many trading card players are reluctant to visit physical stores to buy cards, and cross-border purchases are fraught with difficulties. In this context, the advantages of NBA Top Shot's digital trading cards become even more apparent. "On NBA Top Shot, trading cards can be traded instantly, and players can connect with others from around the world. Plus, there's no need to wait for the trading cards to be graded and shipped, nor worry about their authenticity," Pranksy said.

However, the NBA Top Shot business is closely tied to the NBA's licensing and events; if the NBA were to revoke its licensing or if events were to "pause," it would pose significant challenges to the production of their trading cards.

On the other hand, NBA Top Shot also needs to consider the impact of cryptocurrency value fluctuations on its business during its operation. NBA Top Shot supports both credit card payments and cryptocurrency payments; credit card payments incur a certain percentage of fees, while cryptocurrency payments do not. Nevertheless, according to Coindesk's statistics from October 2020, only 25% of transactions were completed using cryptocurrency, indicating that users still have reservations about using cryptocurrency for payments.

Although there are certain risks, NBA Top Shot's rise also confirms that the new trend of combining sports events with blockchain technology and cryptocurrency indeed has promising development prospects. In recent years, many professional sports leagues and clubs have actively "embraced" these new technologies: the NBA's Cleveland Cavaliers announced UnitedCoin as the team's official cryptocurrency partner; the NFL's Miami Dolphins reached a similar partnership with Litecoin; and the MLB players' union launched a player token digital platform called Player Tokens.

Therefore, Steven is also optimistic about the development prospects of NBA Top Shot and NFTs: "If we consider the explosion of 'CryptoKitties' in early 2018, the emergence of applications in the NFT category actually predates DeFi. However, the NFT sector has remained lukewarm; recently, with the increase in trading volume on NBA Top Shot, NFT trading may experience an explosion in 2021."

As the owner, Gharegozlou is clearly more optimistic, stating, "The trading card business has an annual scale of between $5 billion and $6 billion, and I believe this business has the potential to reach a scale of $10 billion."