The Crypto Games: Meet the man who wants to make NFTs fun

Ironically, his proclaimed antidote to the Four Horsemen of the tech world has gained him a following among members of the same Silicon Valley investor class who funded our current predicament. Dapper Labs, the company he cofounded in 2018, has raised funds at a valuation of $7.6 billion with investors like Andreessen Horowitz, Union Square Ventures, Venrock, Samsung, and even Google Ventures.

“I love finding founders that are really passionate about this much bigger vision,” says Zynga founder Mark Pincus, an early investor. “They want to see it happen as much or more than they want to see their single product happen.” 

Gharegozlou says that he has long felt the tension of our digital borders and the way they have hindered innovation. Crypto and blockchain ease that strain. 

He has also felt the strain of physical borders. Gharegozlou was born in Dubai, went to high school in Paris, then college at Stanford, followed by a stint at the Rising Tide Fund in Silicon Valley. He moved to Vancouver in 2012 to start his own accelerator, Axiom Zen. That’s four countries in less than four decades. 

Those borders, and the problems they caused, have long informed his philosophy. In 2000, as a freshman in high school, Gharegozlou began creating online city guides speckled with affiliate links that generated extra cash. But because he wasn’t based in the United States, he found that the money he had earned was often inaccessible. 

When his cofounder Dieter Shirley, now the CTO of Dapper Labs, introduced Gharegozlou to Bitcoin in 2013, he saw an instant solution to that problem. The pair worked together to build apps on top of the coin, and when Ethereum, a decentralized, open-source blockchain, was introduced in 2015, they envisioned an entirely new digital economy. One without national borders. 

They realized that this would be a hard sell. 

“People don’t even know the alternative,” says Gharegozlou. The current crop of developers came up learning there was only one way to write an app, and that paying a “tax” to Apple or Google was inevitable. Consumers purchase items, like songs on iTunes, that they don’t fully own. They don’t know where their data is going, either. “You just press checkboxes, you press ‘Accept.’ That’s the world we live in,” says Gharegozlou. “No one has provided an alternative—that’s what we’re trying to make.”

That’s where the non-fungible token comes in, which Gharegozlou describes as an “Internet native asset that can move between places,” or a micro of the macro society he envisions. The NFT proves ownership of a unique item, a piece of art, a sports highlight, even a tweet. The proliferation of these tokens, he says, and the platforms they live on, will break us out of our current web paradigm by allowing independent programmers and artists to work and get paid free of corporate restrictions.

Dapper Labs put these heady concepts to the test through a profoundly lighthearted project. In September 2017, Shirley drafted a paper called the “Non-Fungible Token Standard,” the first protocol for standardized assets on Ethereum. A month later Shirley and Gharegozlou launched CryptoKitties, a blockchain-based game that lets players adopt, breed, and trade virtual cats. Each cat comes with a unique number and 256-bit distinct genome producing different traits. It was whimsical, childish, and an instant hit. 

“We ran an alpha test at the first Ethereum event,” explains Gharegozlou. “We put pictures of cats on Pokémon cards to get the idea across that these are digital cats, but they’re collectibles.” The concept was so well-received that upon his return, Gharegozlou tripled the size of his team. The resale value of some CryptoKitties also shot up to deep six-figure territory. 

Gharegozlou went all in. His brother took the helm at Axiom Zen, and Roham spun his project into Dapper Labs with a $15 million round of funding led by Andreessen Horowitz. 

CryptoKitties soon became the busiest address on the Ethereum platform, often congesting the network. 

It was an intentional choice to use cute cats to obscure serious work and technological innovation, says Gharegozlou. It never hurts to hide the vegetables in the pasta sauce. “We wanted to make a project that was doable, using the technology at the time, to let people play with all of these ideas that folks were talking about,” he explains. 

Pincus, whose company is behind games like FarmVille and Words With Friends, inspired Gharegozlou to craft his company’s thesis: People will become more interested in new technology if you show them something fun that they can’t do with the old technology. Gaming drove the adoption of PCs in the home, and for a long period of time the majority of Facebook’s noncollege sign-ups came through social games like FarmVille. 

In October 2020, Dapper Labs tested its thesis once more with NBA Top Shot, a blockchain-based program that lets basketball fans buy, sell, and trade numbered versions of officially licensed game highlights. Why just watch a compilation of Stephen Curry’s three-point shots when you can own it too? 

Forging the partnership with the NBA was a lengthy but surprisingly simple process. Gharegozlou had already connected with players who wanted to invest in his vision (current investors include Spencer Dinwiddie, Michael Jordan, Kevin Durant, Klay Thompson, Thad Young, Khris Middleton, and Udonis Haslem, to name just a few), and so gaining permission from the National Basketball Players Association didn’t take long. The NBA franchise owners, which include Mark Cuban and former Microsoft CEO Steve Ballmer, were won over after a full year of pitching and negotiating. For every Top Shot that is transacted, there’s a 5% seller’s fee, and that revenue is distributed among Top Shot, the NBA, and NBPA. Gharegozlou predicts about $150 million in revenue this year. 

Like CryptoKitties, NBA Top Shot blew up, and quickly. Instead of potentially crashing Ethereum again, Gharegozlou and Shirley decided they would need to create their own platform, a blockchain designed specifically for the extensive scaling of NFT marketplaces and crypto-based games.

Their solution was Flow, which was designed from the ground up to be able to handle NBA Top Shot’s 1 million users and nearly $600 million market cap. Where Bitcoin and Ethereum show that crypto can make finance more open and less opaque, says Gharegozlou, Flow does the same for entertainment and culture.  

$592,553,897

Total market cap of NBA Top Shot “moments” as of July 21

Warner Music Group, UFC, and even Dr. Seuss Enterprises have already partnered with Flow for NFT-based ventures of their own, and more intellectual property partnerships are to be announced. “We’re barely scratching the surface of even our current market,” notes Gharegozlou. 

Flow coin, the exclusive token for all transactions on the network, has nearly tripled in value since its debut this year.

But Shirley says that Flow wasn’t built to generate revenue, “at least not directly.” Dapper is protective of its platform right now, he says, but only because the code is maturing. Eventually the company wants to make Flow more autonomous, open, and less closely controlled. “Our value proposition to our customers is giving them experiences and assets that they own and have full control over,” he says. 

Crypto-critics might write Gharegozlou off as another evangelist for an industry that’s overhyped and overfunded.

NFTs use scarcity as their main determinant of value, but because they represent an item and are not the item itself, token holders have to rely on the word of creators and issuers that they won’t mint more of the same in the future.

There’s also intellectual property theft: Some artists have had the rights to their works stamped into NFTs without their permission, and they have gained none of the proceeds. Unlike the instance of a stolen painting, there is little recourse for the artist. 

“We’re in the first phase of NFTs, and the current version is reminiscent of Napster,” says Tarun Chitra, a crypto booster and cofounder and CEO of Gauntlet, a financial modeling platform for blockchains. But he insists that change is coming and that IP is an issue the tech can solve.

It’s also a challenge that seems trivial in the scheme of Gharegozlou’s larger plans. He imagines a near future where people live in the metaverse, a world that combines the digital and physical. 

It’s not about opening borders, it’s about creating a new realm where there are no borders to begin with.

Dieter Shirley, cofounder and CTO of Dapper Labs

It sounds like a sci-fi film, but “when it comes to the concept of living in a mixed reality world, we’re already there,” he says. “We text our friends and use Zoom to conduct meetings.” Fortnite’s 350 million registered users already interact in a 3D type of metaverse. 

Previous attempts like Google Glass failed, says Gharegozlou, because there was no shared ownership of assets. “Let’s say I have a digital painting in Google Glass, and you have a pair of Microsoft glasses. I want you to be able to see that same painting, and right now that isn’t possible,” he says. 

NFTs could allow both companies to build on the same blockchain out of the box, without sharing any sensitive or proprietary information. “Once the world is ready for a full mixed reality experience, the assets will be ready for that too,” he says. “The possibilities are endless.” 

But with great success comes great market share. And if Flow is the platform that leads us into this metaverse, Roham Gharegozlou might wake one morning to find himself transformed into one of the tech barons he is rallying against.

It’s a real fear, and one that he’s long reckoned with. But he says that the mechanics of blockchain prevent him from getting greedy about market dominance: He’s unable to block third-party sites from looking at the data; he can’t close the blockchain because he doesn’t run the nodes; and the software is open-source. 

“Flow is a computer that doesn’t belong to anyone,” says Shirley. “There is no single company, not even Dapper Labs, that can pull the plug. It’s not about opening borders, it’s about creating a new realm where there are no borders to begin with. Where the core rules are securely baked into the system, and its operation is fully verifiable and predictable.”

Google’s founding motto was “Don’t be evil,” but with an open-source blockchain, says Gharegozlou, you can’t be. 

This article appears in the August/September 2021 issue of Fortune with the headline, “All work and all play.”