NFT
In his own words, Erick “Snowfro” Calderon is not a typical crypto founder.
Before founding Art Blocks, a marketplace for computer-generated artwork, he ran a ceramic tile business for 20 years. During the latest bull market, he claims to have turned down multiple investment offers that would have valued Art Blocks at more than $1 billion. He stands firm on the need to maintain creator royalties in the NFT space. And he has resisted the temptation to launch an Art Blocks token.
But most iconoclastic of all, he is not convinced there will be another crypto bull run.
“There are people who would accuse us of not being ambitious enough with the amount of money we have left,” Calderon, who is also the CEO of Art Blocks, said in an interview. “The reason I’m a little timid and hesitant is because I think a lot of that ‘invest in your startup’ mentality is just waiting for that next bull run — and maybe there won’t be another bull run.”
Art Blocks is in the business of auctioning generative art in the form of NFT collections created by algorithms, albeit within parameters set by human artists. The platform has been a darling of the 2021 crypto boom. According to data from CryptoSlam, it sold a whopping $587 million worth of NFTs in one month in August 2021.
But times have changed for Art Blocks, just as they have in the broader crypto space. The company posted just $6.5 million in sales in April, its lowest total since May 2021. According to Calderon, about half of the projects listed on the platform today have not sold out.
Still, Calderon, a generative artist himself, is stubborn. Even as volumes decline, he’s sticking to topics like maker royalties – despite other marketplaces in the industry deciding to move away from this for the benefit of merchants. While this and similar strategic choices will cost Art Blocks money in the short term, Calderon remains optimistic.
“The vibes are negative, but the vision is very resolute,” he said. “I’m just as excited today — I might be more excited today — than I was in 2021 and I just want people to know that.”
The pain of Art Blocks royalties
Art Blocks’ stance on royalties – the levy paid to creators on the secondary sales of their NFTs – is a striking illustration of how the company has positioned itself.
Blur, the recently launched NFT marketplace aimed at professional traders, set the royalty fee at just 0.5% in February. In response, rival OpenSea cut its fee from 2.5% to zero for a limited time.
Art Blocks, which has its own secondary market, continues to command full 5% royalties. That means collectors will have to spend more to buy an NFT on Art Blocks than for the same NFT on Blur or OpenSea. That has inevitably put a dent in revenues.
“Art Blocks has lost a significant amount of revenue due to royalties,” Calderon said, adding that royalties previously made up the bulk of the company’s event budgets.
But Calderon thinks artists create higher-quality work — in part because it’s less necessary for them to continuously produce — and are generally more engaged with their audiences when royalties are maintained. “It just seems very simple to me that the ecosystem will be a better place if royalty is respected,” he added.
Blur, Calderon said, is “the antithesis of going over the art,” and is much more focused on market mechanisms and traders. “I’m also very frustrated with what’s happening, but if it wasn’t them, someone else would,” Calderon said.
Art Blocks’ unicorn stump
Even with lower revenues, Art Blocks remains a “well-capitalized company,” according to Calderon.
The startup may not have raised a billion dollars, but it did bring in some money through a $6 million round that closed in August 2021. True Ventures, Galaxy Interactive and Collab Currency invested alongside existing lenders Libertus Capital, Flamingo DAO and The LAO.
However, most of the capital Art Blocks has today comes from the revenue it made in the bull run. The company charges a 10% fee on primary sales and 2.5% on secondary transactions, according to its website. A simple calculation therefore suggests that Art Blocks earned at least $58 million in revenue in the month of August 2021 alone.
“We had a crazy year in 2021,” said Calderon. Naturally, after the $6 million round, larger backers came knocking.
Calderon said he has made offers both to invest in Art Blocks and to buy the company outright at valuations in excess of $1 billion. He declined to name the investors.
“Why didn’t we raise more money? Because I thought it would be gross to raise more money when everything was just FOMO,” he said. “I’m sitting here thinking, ‘Okay yes, I can see that in the numbers now, but why on earth do you think these numbers will go on forever?’ It is completely unreasonable.”
In terms of cost, the operation appears to have remained fairly meager; Calderon said Art Blocks’ current workforce is 40 people. And as mentioned earlier, Art Blocks doesn’t seem to burn through money as hungrily as the average tech startup. Calderon considers a one- to two-year runway job “too low,” mindful of the often great jobs his staff have left behind to join what’s still a pretty idiotic startup.
Continue canoeing
Keeping calm and moving forward appears to be the foundation of Calderon’s plan to navigate a difficult period for crypto companies.
“We’re in a canoe and sailing down a river that’s moving very fast, with tiny paddles, and all we can do from a mental health standpoint is just keep doing what we’re doing,” he said. said.
That’s not to say that Art Blocks doesn’t have new ideas in the works. Calderon is speaking enthusiastically about possible use cases for Art Blocks’ on-demand minting technology — the core of which is the 1 or 1 or X concept — in other industries, such as fashion or even ceramic tile. Art Blocks hopes to position the platform as an “engine partner” for such efforts, Calderon said.
Last October, Tyler Hobbs, creator of an Art Blocks hit collection called Fidenza, made $17 million in sales passes that gave buyers control over the appearance of NFTs knocked out of his QQL collection. By playing with buttons and dials, cardholders can manipulate the QQL algorithm to their liking.
Art Blocks is working on new proprietary coin mechanisms, which are expected next quarter, Calderon said. However, there will be less of a manual element.
Calderon recognizes that Art Blocks must reach “homeostasis” at some point. To do that, the startup and even the industry must find ways to access a larger market.
“Some people are so focused on extracting every last dollar from every last person in the industry that’s here that they don’t spend time thinking, ‘how do I make this thing attractive to the outside world?’ And I think as an industry we could be shooting ourselves in the foot,” Calderon said.
“If Art Blocks doesn’t get through this, it’s like the NFT’s value proposition just disappears.”