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The $41 billion NFT industry is unleashing lobbyists on D.C. as it tries to avoid big tech’s fate

January 31, 2022, 12:00 AM UTC

NFTs, or digital assets like art that come with a sort of certificate of ownership, are fetching millions of dollars at auction. Meanwhile, McDonalds, Nike, Coca-Cola, Taco Bell, and Walmart are hoping to cash in by selling their own NFTs to sell exclusive items to their customers. 

With big money now involved, big business is taking note and following the well-worn path of Big Banks, Big Pharma, and Big Tech: hiring lobbyists to sway lawmakers and government officials. 

Businesses pushing NFTs increasingly complain about what they describe as unclear regulations and of lawmakers who lack a basic understanding of the technology. They also fear that their companies will be villainized, such as what happened to Twitter and Facebook over their business practices

In the end, businesses figure that regulation for NFTs is coming eventually. What they want is to have a say in any rules that emerge so that it doesn’t hurt their bottom lines. 

But the effort is causing tension between factions of the Web3 world, an emerging group of companies pushing the idea of a more decentralized Internet. Some want to follow the path of large industries before them, including lobbying by individual companies. But others, many steeped in the original independent ethos of Web3, fear that will lead to regulation for all being influenced by a few big players. 

The stakes are huge. The market for non-fungible tokens reached $41 billion in 2021. Just one digital artwork, The Merge, by artist Pak, broke sales records by fetching $91.8 million in December, for example. The frenzy is expected to only grow. Investment bank Jefferies predicts that NFT sales will double to $80 billion by 2025.

A direct approach to NFT lobbying

Some industry groups have lobbied in Washington on NFT-related matters almost since NFTs were created in 2014. Coin Center, founded in 2014, and the Blockchain Association, in 2018, have tried to educate lawmakers about the larger decentralized finance industry, but they are both nonprofits, and relatively small and underfunded

That’s all changing. 

Dapper Labs, among the largest blockchain and NFT businesses, recently became the first company to disclose its federal lobbying on issues directly related to NFTs. And it did so in a traditional way: It hired Crossroad Strategies, a group that has a long client roster in banking, telecom, pharmacy, energy, and tech, to lobby on its behalf. Dapper Labs also recruited Alison Kutler, the former chief of the Consumer and Governmental Affairs Bureau and special advisor to the chairman of the Federal Communications Commission, as its new head of government affairs.  

In a statement to Fortune, the company said: “In this increasingly digital world, we believe in openness, transparency and equality of opportunity. That’s why our mission at Dapper Labs is education and mainstream adoption of Web3, and we’re committed to championing the benefits of this technology to society.” 

Additionally, a number of crypto companies—NFTs are bought using cryptocurrency—and the venture capital firms that invest in them are increasing their overall lobbying. The lobbying isn’t specific to NFTs, but it suggests the companies are taking a broad and traditional route to exert influence in D.C.

For example, Andreessen Horowitz, a high-profile venture capital firm that has invested over $3 billion in Web3 startups including in Dapper Labs, has had a lobbying operation in D.C. for some time

But critics say that direct lobbying by major NFT and cryptocurrency companies betrays the promise of Web3 as truly democratizing the Internet. It’s supposed to be shared and borderless, operating with full transparency and no centralized leader pulling the strings—not a big business that curries favor with lawmakers behind closed doors and seeks legal loopholes. 

“It’s not about opening borders, it’s about creating a new realm where there are no borders to begin with,” Dieter Shirley, the cofounder and chief technology officer of Dapper Labs told Fortune in an interview last year

The Lobster Method

Other NFT leaders are taking what they say is a more bottom-up approach to influencing Washington. They still want to impact how lawmakers treat their industry, but they argue that a more diverse set of voices should play a role. 

Tyler Ward, the co-founder of BarnBridge and Universe, two decentralized finance companies that act as platforms for NFT sales, believes there’s another approach to influencing Congress that better embodies the “cryptopunk” ethos of the early NFT days. That would be a DAO or decentralized autonomous organization, a group of people with a common interest and a shared bank account, but no leader. 

“I worry that we’re just getting into the same thing that we got into with the old financial world,” Ward told Fortune in an interview from his home in Puerto Rico, home to many crypto millionaires seeking low taxes on their earnings. “That the only people who are allowed to truly enact change are people like me that ‘made it’ and can give a million bucks to a Super PAC.” 

Ward wants to convince lawmakers to keep the NFT world relatively deregulated. He believes that the current lobbying done on behalf of NFT-based companies ignores the interests of the creatives and coders who he says were essential to the industry’s inception, and who were there well before large corporations and venture capitalists signed on. 

“If this turns into a big political game where people don’t get a voice, then I don’t know why I’m here. I can go work at Goldman Sachs tomorrow,” Ward said. 

In late 2021, Ward set up an auction of NFTs, which he called Lobby Lobsters, with the intention of giving the earnings to influencing groups in D.C. To organize the sale, he used a DAO made up of people in the decentralized finance world, or DeFi who don’t have as much money as Dapper Labs, but who still want to collectively impact D.C. 

Lobby Lobsters was a series of 10,000 cartoon lobsters minted on the Ethereum blockchain. Each lobster sold for about $400, with the proceeds to benefit crypto advocacy organizations in D.C., according to Ward. 

The NFTs sold out in 30 minutes, raising $4 million at the time of the sale. Because the sale was organized by a DAO, each owner of a lobster NFT got to vote on where their money went. A proposal to send the money to Coin Center was unanimously approved, leading to the largest donation in the organization’s history

At the time, Coin Center’s annual budget was $1.3 million.

There are limits to Ward’s approach to influencing D.C. Because of how they’re formed, DAOs aren’t allowed to donate directly to political candidates.

An alternative is to find individuals in the Web3 space who are willing to attach their names to projects that would lobby and influence D.C. regulators, Ward told Fortune. But because the legal space is still so gray, they’re afraid that they’ll become targets for those regulators if they put their necks out. 

Skepticism abounds

Tarun Chitra, founder of Gauntlet Networks, a financial modeling and simulation platform for different blockchains, is skeptical about the promise of the DAO as a way to make NFT political influence more democratic.

“It’s very idealistic,” he said. “I think there are people who are inspired by them, but the people who are actively contributing don’t know how to lobby.”

Instead, he said venture capital firms, which have a long track record of lobbying, will be the ones “that move the needle.” 

Still, some big names are growing skeptical of how the crypto world is changing and exerting influence. Twitter cofounder Jack Dorsey, who is currently CEO of payments and crypto firm Block, took to Twitter last month to rant about the rapid growth in money flowing between D.C. and Web3 investors last month. 

Said Dorsey: “You don’t own ‘Web3.’ The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralized entity with a different label.” 

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