NFT, Metaverse, and Pop Mart

This article was published on Rhythm BlockBeats, author: 0x29.

No one expected that the blockchain's breakout would rely on a sector that no one had paid attention to.

Blockchain has been trying to attract more people, telling different stories, creating different applications, and striving to make traditional fields understand the advantages brought by technological innovation, but the effect has been minimal. What people still remember are the words "Bitcoin."

However, in 2021, some phenomena proved that Bitcoin was no longer the only one.

The American rapper Soulja Boy, with 5 million followers on Twitter, launched his own NFT; Mark Cuban, the owner of the NBA championship team Dallas Mavericks, issued NFTs; a dunk by superstar LeBron James was made into an NFT and sold for $250,000; top football clubs like Barcelona and AC Milan also launched their own NFTs.

These events were like stones thrown into various fan circles, causing ripples in different communities. Hip-hop music enthusiasts on Twitter discussed how to buy their idols' NFTs; NBA topics on Clubhouse also discussed NBA NFTs; even the largest sports forum in China, Hupu, began to have related discussions.

The speed of NFT development surprised everyone.

The climax arrived during an auction on March 11, when the famous artist Beeple's NFT work was sold at Christie's, with the final price locked in at $69.34 million at the last second. This NFT work became the 53rd most expensive artwork in the world, and Beeple entered the top three in the ranking of living artists by the value of their works.

The internet also provided a perfect assist for NFTs. The two largest social platforms on the planet, Tencent and Facebook, simultaneously focused on augmented reality and virtual reality (AR/VR), which was no coincidence. They envisioned the future internet as the Metaverse, a world where the virtual and reality can seamlessly connect, and the term NFT has been discussed multiple times in conversations about the Metaverse, perfectly fitting the concept of ownership in the Metaverse.

In just a few months, the term "NFT" landed all over the world. Blockchain is rapidly spreading through this product, reaching an unprecedented level of influence. This is not a diffusion from the inside out, but a blossoming in multiple places.

Capital has the keenest sense; they have long sensed the blue ocean of NFTs.

The well-known NFT trading platform Nifty Gateway was acquired by the largest cryptocurrency exchange in the U.S., Gemini; the NFT trading market Mintbase completed a $1 million seed round financing; another trading platform, Terra Virtua, secured $2.5 million in private financing; and the well-known platform Rarible also raised $1.75 million in seed round financing.

A brand new market is opening up, and all of this traces back to that little cat in 2017 and the team behind it.

Origin of NFTs

Whether or not you have invested in Bitcoin, you must have heard about its craziness in 2017. In the overwhelming reports from tech and finance media, Bitcoin's market value tripled in a very short time, becoming the most eye-catching asset globally. Along with Bitcoin's rise to fame came the blockchain industry behind it. Thousands of projects appeared in the market, mostly in the form of speculative concepts, with hardly any visible applications of blockchain.

But "CryptoKitties" was a particularly unique case.

This is a collectible breeding game where players acquire a virtual kitten. The key point is that each kitten is different.

Through blockchain technology, the attributes of the kittens, such as fur color, eyes, and patterns, ensure the uniqueness of each kitten. The kitten you own cannot be owned by anyone else.

This is a "CryptoKitty" that sold for as much as 1.2 million RMB.

Later, people began to refer to these tokens with unique attributes as NFTs, which stands for "Non-Fungible Tokens." A more straightforward explanation can be understood as non-interchangeable tokens.

The paper money we use in our daily lives is "fungible"; each bill of the same denomination can be exchanged, and there will be no dispute between the parties because their value is the same. In the crypto realm, Bitcoin and other cryptocurrencies are "fungible tokens."

However, due to different standards of on-chain contracts, a type of "non-fungible" token emerged.

It's like we cannot directly exchange the "Mona Lisa" for "Girl with a Pearl Earring." Although both are paintings made of paper, they have different values and carry different cultures, leading to a difference in value. This is the distinction between NFTs and ordinary cryptocurrencies; you can directly exchange one Bitcoin for another, but you cannot directly exchange one NFT for another.

Soon, owning a CryptoKitty became a trend among players in the crypto space. At that time, being able to own a kitten was as exciting as an ordinary person buying a designer handbag or getting an idol's autograph. Amid the crazy pursuit in the crypto circle, this virtual kitten game unexpectedly became the largest daily active application on the blockchain's biggest ecosystem, Ethereum.

This phenomenal game also introduced everyone to the team behind the little cat, Dapper Labs.

From a god's-eye view, looking at real life, at the same time that CryptoKitties were being celebrated in the blockchain industry, in 2017, a little girl with blue eyes, pouting lips, and a highly recognizable image began to appear in the conversations of young people, gradually becoming popular.

This little girl doll, with slightly different characteristics in clothing and styling for each doll, attracted the interest of young people. For just a few dozen yuan, players could open a box and receive a surprise. As the gameplay became popular, young people also got to know this little girl named Molly and the company called Pop Mart.

Three years later, looking back at this "century synchronization," we find that it is inevitable for a company to emerge in both the virtual and real worlds that can be mutually benchmarked in terms of platform, IP, and brand.

Creating Your Own Platform

The wave of CryptoKitties made Dapper Labs see the market opportunity.

With over 90,000 players, a historical trading volume of $29.9 million for several consecutive years, over 5 million transaction records, and a single kitten selling for as much as 1.2 million RMB, all the data prove that this NFT market created by leveraging the contract characteristics of blockchain technology has immense potential. The impact of a single kitten is astonishing, and the opportunities for NFTs are self-evident.

However, the limitations are also extremely obvious. In this niche market, a single game's transactions clogged the largest blockchain network platform in the world. For the NFT market, which has the potential to attract a larger number of users, the underlying platform's performance is the biggest shortcoming. The application is too advanced, but it requires underlying support.

Thus, the Flow project was put on the agenda.

This is a platform specifically designed by Dapper Labs for NFT games, a blockchain network dedicated to NFTs, aimed at ensuring that every player can enjoy the best gaming experience. Transactions have no delays, no high fees, and players may not even realize they are gaming on a blockchain-based network.

There are indeed platforms in the market with better performance than Ethereum, but Dapper Labs still chose to build its own platform. This decision proved to be crucial. Three years later, Dapper Labs attracted over 200,000 users with the NBA's official co-branded NFT game "NBA Top Shot," pushing NFTs to a new peak.

Compared to the already congested Ethereum network at the same time, Dapper Labs' Flow network fully supported several times the previous user volume, with no congestion and no fees. In terms of user interface and experience, it was almost indistinguishable from the internet, and hundreds of thousands of players could hardly feel that this was a game based on a blockchain network.

Creating its own platform and having its own channels is akin to Pop Mart in the real world.

If you visit in person, you will find that the domestic supply chain capable of producing high-quality blind box toys is fully covered by Pop Mart.

These suppliers are not only production channels for Pop Mart but can only be production channels for Pop Mart. To prevent manufacturers from taking orders from competitors, Pop Mart fills all of the manufacturers' production capacity, ensuring that every production line is constantly producing Pop Mart products, leaving no idle production capacity. Once a production supplier has the ability to increase capacity, Pop Mart quickly increases demand.

A strong supply chain requires even stronger sales channels to digest it. According to the prospectus, as of June 30, 2020, Pop Mart had 136 retail stores in 33 cities in China and had placed 1,001 vending machines in 62 cities.

As long as you walk in the mainstream business districts of first- and second-tier cities, you will hardly miss Pop Mart's showroom. Over 7 million users across the country contributed nearly 800 million RMB in revenue to Pop Mart in just one year in 2019, accounting for nearly 50% of total revenue across all channels.

Image source: Pop Mart prospectus

In terms of channel selection, both Dapper Labs and Pop Mart have committed to the path of their own platforms, and another similarity is their recognized brand strength.

Looking at Brands from Signed IPs

There are many companies in the market making games, but only Dapper Labs is creating its own platform, which has also been recognized by capital.
The Flow platform plan allowed Dapper Labs to secure $11.4 million in financing, with an exceptionally dazzling list of investors, including Union Square Ventures (USV), which previously invested in Twitter's Series A, well-known Coinbase Ventures, and top-tier capital a16z and Samsung, which continued to invest in the previous round.

These investment institutions, renowned in the blockchain and tech internet industries, not only recognize Dapper Labs' development strategy but also place great importance on the brand that Dapper Labs has built in the blockchain NFT field.
The peak of the Dapper Labs brand was reached with NBA Top Shot, a game that collaborates with the NBA and has been recommended by Mark Cuban, the owner of the Dallas Mavericks, and top star Kevin Durant.

This dunk shot by LeBron just sold for $208,000.

There are thousands of IPs in the world; how to choose an IP is an art. If you pay attention to the streetwear and toy markets, you will find that recently, the IP "Tom and Jerry" has suddenly reappeared in the market, collaborating with trendy brands on clothing and producing toys with blind box brands.

The core reason why so many people choose the IP "Tom and Jerry" is that this IP is an image that almost everyone on this planet knows, extremely universal.

Looking at the world's top IPs, such as Hello Kitty and Disney, the reason they have become the most lucrative images today is simply that everyone recognizes and loves these IPs.

Of course, this also includes the NBA IP.

This is one of the four major sports leagues in the U.S., covering billions of fans worldwide. Coupled with the NBA's own commercial operations and the personal influence of top stars, the name NBA is known by almost everyone globally.
Collaborating with such a universally appealing IP is certainly a very suitable business. Not only giants in the sports field like Nike collaborate with the NBA, but even the most well-known trendy toy brand Bear Brick has previously launched toys in collaboration with the NBA IP.

This is precisely what the current NFT field lacks. Currently, the collectibility of NFTs is too strong, but the term "collect" inherently creates a sense of distance; this market is simply too small.

In 2020, the Basel Art Fair and UBS jointly released a "2020 Art Market Report," which showed that global art sales fell by 5% year-on-year in 2019, amounting to approximately $64.1 billion, with a transaction volume of 40.5 million times. In contrast, 2018 was the highest level in nearly a decade, and the data for 2019 began to decline.

Comparing the collectible market, which is less than $70 billion, what is the scale of the consumer goods market?

Using 2019 data, JD.com's GMV in 2019 was $299.6 billion, breaking through the 2 trillion RMB mark for the first time. The annual active users rose to 362 million.

Alibaba's data is even more astonishing, with its consumer business reaching 7.07 trillion RMB, equivalent to $1.014 trillion, becoming the world's first platform with a GMV exceeding $1 trillion.

This is just the data for China's consumer goods market; the global art market is only a fraction of a single consumer goods platform, while the consumer goods market data is still on an upward trend compared to the declining trend of the collectible art market.

Returning to Pop Mart, in 2019, Pop Mart generated revenue of 1.683 billion RMB, approximately $300 million, with a revenue growth rate of 227%. Similarly, this field will not stop growing.

By the end of 2019, the Gen Z population was about 260 million, accounting for 16% of the total population. This is a completely different generation, self-taught in the internet age, with a consumption mindset more inclined towards the spiritual level. They have their own fashion and aesthetics, and their own ways of expressing identity and status, which gives the trendy toy field enormous development potential.

In 2019, the global trendy toy market was valued at $19.8 billion, while China's market was 20.7 billion RMB. According to Founder Securities, the global trendy toy market still has 17% growth potential by 2024, while China's trendy toy market has over 20% growth potential, reaching 76.3 billion RMB by 2024.

This is also the potential of the NFT field.

NFTs are indeed very popular now, and many people do not recognize them; they believe it is speculation, it is FOMO, and that NFTs have no real use.

But they may not have considered the existence of NFTs from the perspective of the times.

Before the 1980s, there was no internet, so everyone was educated to believe that Da Vinci's paintings are art, and porcelain from Jingdezhen is art; only physical objects are art, and gold is a hedge against value. With this mindset, it is difficult to recognize that an NFT on the blockchain can have value.

But as time progresses, the post-80s generation has already accepted that in-game equipment can be worth hundreds of thousands of RMB, and Takashi Murakami's sunflowers are now considered art.

Now, the Z generation has accepted that Bitcoin is better than gold; they regard virtual characters as idols. They may not understand Da Vinci's paintings, but in their minds, NFTs might be the art of their era.

In the future, in a fully digital world like the Metaverse, the existence of NFTs will have more coherent rationality. In the virtual world, the furniture we buy from IKEA might also be NFTs, and the clothes we buy in malls might also be NFTs; this could be the future norm for NFTs.

This field currently emphasizes art collection more, using the already niche art circle to overlap with the even more niche cryptocurrency circle. The intersection of these two niche circles is the support for the NFT field, which cannot develop beyond its niche. Dapper Labs' choice of the NBA IP completely breaks the inherent impression of NFTs.

Dapper Labs creating the NBA game is not merely a card-collecting game; the term "collect" inherently isolates the majority. Dapper Labs is building a community and gathering place for NBA fans, which aligns well with Pop Mart's approach.

Molly's original artwork is highly artistic, with each piece expressing the artist's desire through artistic means, a method that is destined not to be widely accepted.

Thus, after signing the IP, Pop Mart will personally overhaul the IP, discarding all elements related to art and retaining only the most easily accepted elements.

To put it more bluntly, Pop Mart is not making collectibles; collecting inherently creates a sense of distance from ordinary people. Pop Mart is making consumer goods, akin to Heytea or McDonald's, rather than niche collectibles like Bear Brick. Therefore, we see that Pop Mart's IPs are extremely universal, either already having high coverage like Disney or being the revamped Molly.

Their partnership with Disney is to enter a market where they can place products in Disney parks, expanding their sales channels. Similarly, Dapper Labs' partnership with the NBA is to expand its user base.

Such a strategy further highlights brand value. Signing IPs is not exclusive; the NBA can sign with Dapper Labs, but it can also sign with other NFT brands. Disney can sign with Pop Mart, but it can also sign with other brands.
But why can Dapper Labs secure authorization from the NBA? The core reason is that Dapper Labs has already become a top brand in the NFT field through years of development.

Just like when we mention Iron Man figures, the first brand that comes to mind is definitely Hot Toys, because their head sculpt design and alloy material quality are the best among all similar products; when we mention blind boxes, we will definitely think of Pop Mart, because Pop Mart's design and quality are the best among all similar products.

Similarly, when we mention NFTs, the brand that pops into our minds is definitely Dapper Labs. Rhythm could also create an NBA NFT game, but it would never be more valuable than what Dapper Labs designs.

Because they have top-tier VC backing, the most loyal player users, and their own platform to support them, all of these converge to form Dapper Labs' brand power, enough for everyone who knows about NFTs to understand Dapper Labs, making their NFTs more noteworthy than those of other brands, becoming the "Pop Mart" of the Metaverse field.

"We want to show the world that cryptocurrencies have more practical uses beyond trading and finance," said Roham Gharegozlou, co-founder and CEO of Dapper Labs, in an interview. Now, the NFTs represented by Dapper Labs have completely transcended blockchain and Bitcoin.

From the CryptoKitties that ignited the industry, to the Flow network built specifically for the NFT field, to the NBA Top Shot that pushed the industry to new heights, Dapper Labs is continuously creating miracles. With new IPs like the international motorcycle racing event MotoGP signing on, and collaborations with top gaming institutions like Ubisoft, now may be the new chapter for Dapper Labs and even for NFTs.