Mark Cuban — billionaire investor, owner of the Dallas Mavericks, and Shark Tank “shark” — shares his thoughts on the Ethereum vs. BTC debate, issues with DeFi, and how NFTs could change content distribution. Tune in to hear Mark talk about…

  • why ETH is a better store of value than BTC (1:08)
  • why bitcoin as an inflation hedge is a bananas narrative 6:29)
  • his opinion on EIP-1159 and the idea of proof of stake mining (9:06)
  • why minting an NFT was a crypto-lightbulb moment for him (11:36)
  • how his background in technology prepared him to invest in crypto (13:55)
  • the main problem with the DeFi user experience and his advice for new DeFi users (16:34)
  • what might happen to the centralized banking system if DeFi becomes the norm (20:46)
  • how putting private data on a blockchain could work (25:53)
  • why CBDC’s make “perfect sense” (32:11)
  • how he evaluates decentralized business models and governance structures (41:13)
  • his NFT investment thesis (47:09)
  • who he believes will be the NFT winners in the long term (52:09)
  • why Mavs tickets are a perfect example for how NFTs may be used in the future (54:55)
  • industries that are ripe for NFT disruption (59:45)
  • the many use cases for NFTs (1:01:48)
  • why he is advising against minting social tokens (1:04:15)

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Transcript

Laura Shin:

Hi everyone. Welcome to Unchained, your no hype resource for all things crypto. I’m your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and, as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. Follow Unchained on Twitter @Unchained_pod, where you can find all sorts of content ranging from my weekly newsletter to updates on my upcoming book and a whole lot more. 

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Laura Shin:

Today’s guest is Mark Cuban, the billionaire investor, owner of the Dallas Mavericks Shark Tank “shark”, and, now, crypto and NFT investor. Welcome, Mark. 

Mark Cuban:

Thanks for having me, Laura. 

Laura Shin:

So you’ve said that you believe the odds are that people will use ETH as a store of value and not Bitcoin. Can you explain why?

Mark Cuban:

I didn’t say not, but I think there are just significant differences between the two. Both of them, effectively, are platforms that enable a lot to happen. Bitcoin, right now, has evolved to be primarily a store value, and it’s very difficult to use it for anything else. If, if you want it… it’s become digital gold. You can use it as a platform that enables other things, but it requires a whole lot more. It requires wrapping or doing a variety of other things, and it really acts as collateral more than anything else in order for it to gain additional utility. Whereas Ethereum, there’s just a lot more built-in utility in it’s organic and native form, right? Just the ability to use smart contracts organically and natively is just a significant difference right now. And that’s not to say there aren’t layer 2s on Bitcoin that create new value and create new opportunities, but you really have to work a lot harder on Bitcoin than you do on Ethereum.

Laura Shin:

And then, so for that store of value aspect for ETH — saying people will use it a lot, are you saying simply since they expect they’ll use it, then they’ll just hold onto it more naturally?

Mark Cuban:

No, not necessarily. I mean, obviously EIP 1559, everything changes. What happens going forward is going to really impact how people perceive it specifically as a store of value. But, because people are using ETH to buy NFTs, to do more things, and because smart contracts just make it a little bit simpler to do development, and because we’re looking at, hopefully, a shorter-term evolution to ETH 2. And I know a lot of people have been saying that for a long time. I think you’ll see there’s more reason to buy ETH right now beyond just being a store of value, but it doesn’t exclude being a store of value to buy ETH if that makes sense.

Laura Shin:

I also was curious because recently PayPal has enabled US users to pay with bitcoin, ether, litecoin, and bitcoin cash at merchants. I know that the Dallas Mavericks did briefly accept bitcoin as payment, and I just wondered what your opinion was of this offering.

Mark Cuban:

So it goes back. Actually, we started accepting Bitcoin in 2017; that’s when we started. People have always looked at me as a Bitcoin skeptic, and let me explain why. Obviously, I’ve been familiar with Bitcoin since it’s initiation, at least my initiation to it in 2012 or earlier. When I first got involved with playing around with Coinbase and got exposed to it. Back then, the narrative around Bitcoin was that it was going to be a currency. And, to me, I never saw Bitcoin as a currency. And if you look back to any conversation I’ve had about it, I’ve always been really positive about blockchain. I was one of those people that was positive on blockchain, saw Bitcoin as a store of value, but thought it was crazy that people thought it would be a currency because there just wasn’t the ability in its network to handle transactions.

It wasn’t very simple for grandma to come in or grandpa to come in and use it easily. I wanted to see if my thesis was right. By the time 2017 rolled around, we were able to get a payment gateway set up. My attitude was if people wanted to spend Bitcoin as a currency, let’s see if they’ll do it. I’ll discount Mavs merchandise and Mavs tickets, and nobody did. It was more an experiment to see if I was wrong. As it turns out, Bitcoin really is not designed to be a currency. There’s lots of people that have been talking about the lightning network for years and the changes, but as we saw in 2017, there’s a reason why there’s Bitcoin Cash, right?

There’s a reason why there were a lot of hard feelings in what happened with Bitcoin in 2017. And the underpinning of that was that it was not fun to be — traditional Bitcoin was not going to be a currency. And that’s really where people have had disagreements with me on my stance. But, here we are in 2021, and people think you’re crazy if you spend your Bitcoin and if you use it as a currency. That said, a little aside, just because I’m part of the crew and I’m a Bitcoin believer as a store value, I’m making an exception. And I already ordered a new Tesla a few months ago, so when that Tesla gets ready to get shipped, I’m going to buy some new Bitcoin — I’m not going to get rid of any of my existing Bitcoin — and use it to buy my Tesla.

Laura Shin:

Yeah. That’s smart for the capital gains tax reasons. So one thing that is interesting, which you kind of pointed out, is that you do have a contrarian to a lot of bitcoiners. And another thing that you said, which I found interesting, this was on the Defiant podcast, was that you don’t see that there will be any correlation between what the Federal Reserve does and the price of Bitcoin. And I just wanted to hear why or why not, because that is obviously a very different opinion from a lot of people.

Mark Cuban:

Look, any alternative asset, or any asset period, that is looking for appreciation has to be sold with narratives — it has to be. A share stock, Apple computer used to be a cyclical stock and went up and down in cycles. Now it’s a growth stock. You can just look at any stock, any asset from baseball cards to gold in particular, and there’s gotta be a narrative. The narrative for gold historically has been a hedge against doomsday, a hedge against inflation. It’s not. It never has been. That’s just the narrative that people use. If you go back to the things I’ve said over the years and written on blogmaverick.com, I’ve always thought gold was kind of a joke. That there is no true intrinsic value other than some industrial manufacturing, and true gold holds the color better than most metals, but no one needs gold jewelry.

It’s not like the world can’t survive without gold jewelry. So, the narrative that it’s precious helps build value. And Bitcoin kind of is the same way. There is no true connection between inflation, other than the fact that all assets could go up in price with inflation, and Bitcoin could be one of them, but so could the cost of a car, or anything else for that matter — the cost of bananas. And there’s just no real proof or tie there, but it’s a great narrative. If the Federal Reserve keeps on printing money, then you need an asset other than the Federal Reserve that you can hold in order to offset the inevitable inflation that comes with it. Great narrative, nothing, in fact that shows that that correlation will hold. And it’s the same with gold. If it were up to me, we’d sell all the gold in Fort Knox, and whether we put it in Bitcoin, bananas, or use that money to pay for people to eat, which is my preference, to provide food for people, so they don’t go hungry. There’s no correlation, and there won’t be other than the natural inflation of all assets.

Laura Shin:

By the way, I do love how you keep talking about Bitcoin and bananas because there is a famous video of you saying you’d rather have bananas over a Bitcoin. People can look that up. I actually just want to add, or I’ll put it in the show notes, but I do want to go back to what you were talking about. Ethereum Improvement Proposal 1559. This is the one where the transaction feeds will be burned on the Ethereum network instead of being sent to the miners. I wondered what you thought that would do for the price of ETH. And then, if you would like to project out into the future, how that would kind of effect this kind of Bitcoin versus Ethereum narrative, which is sort of like a weird narrative because they’re just different things. But I was just curious to hear…

Mark Cuban:

Who knows exactly. I mean, I’m not trying to be a prognosticator on pricing or anything like that. But, if we get to proof of stake, when we get to prove the stake, the holdback of the impact on the environment will change immediately. That is going to give some people a reason to use Ethereum as a store of value over Bitcoin, right there. The fact that with proof of stake, you’re going to be able to have, some multiple, a significantly higher multiple, in transactions per second, that’s going to improve the utilization and the opportunities to create on Ethereum. With the advancements and applications for smart contracts right now, we see quite a bit of utilization with smart contracts for NFTs, but those are really just proof of concepts for what can happen in the business world. Applications like insurance, legal documents, the list of applications, everything that you do using digital, right now, there can be better-distributed databases and decentralized applications that can be done on Ethereum. I think the applications leveraging smart contracts and extensions on Ethereum will dwarf Bitcoin. So Bitcoin will be a store of value, but because it has to be done using miners, you can’t just switch to proof of stake with Bitcoin. There is going to be some hesitancy. Now, that doesn’t mean I’m going to sell my Bitcoin. I’m not. But at the same time, let’s just say I own a lot more Ethereum’s than I do Bitcoins.

Laura Shin:

Wow. Although I did hear that at least the percentage of your portfolio is still — a small, it’s like, I think half of it, half of what you own in Bitcoin in terms of dollars, is that right? 

Mark Cuban:

Yeah. Close.

Laura Shin:

So you obviously have known about Bitcoin for a while. You’ve been a little bit of a skeptic in terms of it’s used as a currency. So now it seems like you are all in on crypto and NFTs. And I just wondered what for you were some of your light bulb moments.

Mark Cuban:

Well, I like to geek out on new technology. I’m the guy that as AI started, and I started to become more aware of AI, I would go on AWS and do machine learning tutorials, I’m taking YouTube classes and Coursera classes on creating JavaScript, three-layer neural networks, just so I can have an understanding because as an entrepreneur and as an investor, you gotta be able to tell what’s real and what’s bullshit and have a basic, at least a basic understanding, if not more, and the same thing applied to NFTs. I’m always a skeptic by nature, and till I go in there and find a reason not to be. I went on Mintable.app because I’d read that it was the cheapest place for a newbie to get in and try to mint things.

And when I did my first NFT as I was going through filling out everything for this little file that I was going to mint, it showed me royalties, and it showed me all these other features that are, we’re part of the smart contracts. And I was like, Oh my goodness, you mean for the first time ever, I can take a digital file, mint it, turn it into an NFT, put it on the blockchain, and earn royalties and earn income post first sale. Cause that never had happened before with any digital file, not MP3s, not with photos, not videos, not anything. And to me, that was just like, okay, that turned the light bulb on. And it was like, okay, now we’ve got to learn about smart contracts. And with smart contracts, I did my solidity, just like I do with AI. I did my solidity tutorials and understood how the variables worked and what couldn’t and couldn’t happen and the different features that were there and weren’t there and extensions that carried and didn’t — all those things. It was literally the fact that you could earn royalties, and that was a standard that should be, not always is, but should be, that should carry across all layer 2 and higher applications on the blockchain.

Laura Shin:

I just love this because, I mean, for me as a creator, the royalties thing also, the second I understood that I was like, wow, like I would love to take that…

Mark Cuban:

It’s a gamechanger.

Laura Shin:

And I was curious, so obviously you have a huge, long background in technology and all kinds of things, but I also thought, well, maybe your perspective as the owner of the Dallas Mavericks, which is a completely different type of industry from the crypto industry, or just your experience as a shark on Shark Tank, which I believe takes pitches from a variety of different industries. I wondered, do you think that that shaped your views in a different way from the typical crypto investor about what will be the truly big things? Can you talk about that? 

Mark Cuban:

So you got to go back to my early history. After getting fired from a software job when I was 24, I started a company called MicroSolutions that effectively acted as a systems integrator and I taught myself to program. I was in my twenties, and it was just like, I spent the next seven years writing software that worked on the first local area and wide area networks and then replicated databases. My whole reason for existing as a systems integrator was walking into a company and allowing them to digitize what they were doing. As Mark Andreessen said, software eats the world — I wanted to help software eat their businesses. And I then sold that, took some time off, traded stocks, various things. And then in late ’94, early ’95, I got together with a friend that was like, how can we use this new thing called the internet to be able to listen to Indiana basketball while we’re in Dallas?

And it was like, okay, well, I have a background in databases and networking and programming, let me see what we can figure out. And literally, there was nobody streaming at the time. That’s why I was like, how do we solve this problem? Well, let’s find a solution. And we started a company called AudioNet, which was one of the first, if not the first streaming companies to really get the thing going. Obviously, we sold that years later or five years or four, what was it, five years later to Yahoo. But then, I started the first, all high definition TV network. My history has always been okay, here’s something, here’s new technology. — how can I apply it to industries and businesses to try to change the game and disrupt them? I take the same perspective here, looking at what’s happening with layer 1s, in blockchain. I mean, whether it’s Bitcoin, Ethereum, any of the other blockchain competitors, how can you use them to disrupt traditional business? And I look at what’s happening with NFTs, as I said earlier, just as a proof of concept. It’s like, okay, if we can do this with art and music pictures and some video, then where else could we apply them to really change industries?

Laura Shin:

So let’s now talk about DeFi. You’ve talked about the difficulties in the user experience for people to use DeFi. What do you see as the main user experience problems that need to be resolved? And then once those are resolved, what do you think our future will look like?

Mark Cuban:

Trust. Trust is the biggest problem, right? Because there’s an inherent conflict in DeFi, decentralization. Historically when we’ve dealt with our money and our finances, we’ve gone to people that we trust. And when you look, we’ve always been taught that if it looks too good to be true; it probably is. And there’s a lot of that in DeFi right now, where there are a lot of places where you can yield farm and pool and get APY that looks really, really, really good until you really start to dig in and analyze the risks. And it’s not that some can’t make you a lot of money if you’re careful and really do the homework, they can. There’s a lot of good companies, but there are a lot of Ponzi schemes and a lot of rug pullers out there that really make it difficult for newbies and people who don’t have the time to invest, to really do the homework, to make it work.

Laura Shin:

And what would you advise people like that who are interested in getting into DeFi that they should do in order to not become the victims of scams like that?

Mark Cuban:

You just gotta do your homework, right? I mean, you can’t get caught up in what you see on social media. Particularly for DeFi, you’ve got to look at… I tell people to look at Aave, Compound, places that have been around for a while that have a history that you can look at because there’s trust there because even in a decentralized environment, you’ve got to find organizations that you can trust. You’ve got to find communities, I guess, is a better way to say it than an organization, communities that you can trust. Because even with the DAOs out there, if you don’t understand the DAO of a particular DeFi environment, a big holder can take things in a direction completely opposite to what you expected or what you had hoped for when you got involved with something.

There’s something new popping up every single day, this DEX that DEX. Then there’s, there’s different blockchains. This is on Polkadot. This is on NEAR. This is on Matic. This is on Crypto. This is on this. This is on that. And, as all these places search for liquidity and LPs, liquidity providers, in order to be able to have some balance for their exchanges, that’s confusing. You also see scenarios, as people stake, there’s a lot of money out there, but there’s not an unlimited amount of money to be able to lock into all these different platforms. It’s just really, really confusing unless you really put into time to know exactly what you’re doing or work with people that you can trust.

And the other thing I say to people is the reason why it’s worth putting the money in, even if you build in, a 30% loss, right. When I say loss, it’s not that there’s a rug pool, but maybe the price that you expected with the API; by the time you tried to liquidate the tokens that you were given, the price had dropped significantly, and you weren’t able to get there. That’s the big thing. And then finally, the third thing I tell them is a lot of small players can’t afford to do DeFi because of the expenses and the gas fees that are involved. Yeah, on other chains, there are different opportunities that don’t have gas fees, but even so, there’s always going to be a cost somewhere.

None of this is for free. You’ve gotta be able to scale at some level, or at least commit for a long, long time. Smaller users, particularly smaller, new users, may not have that financial flexibility. Particularly on Ethereum based stuff, you see a ton of people that you talk to that they put up $500, and by the time they’d go to hit the confirm and they look to see that their gas fees are going to eat up anything they could possibly earn unless they stay in it for 17 years… it becomes a shock for them. So you really have to do your homework.

Laura Shin:

So once all these issues are resolved, and the transaction fees are lowered, and scaling is resolved, what do you think will happen to the banking system? Do you imagine just everybody will start keeping their savings in yield farming tokens and giving themselves their own loans on their own crypto assets via smart contracts?

Mark Cuban:

It’s a great question. I don’t know yet. It really depends on how nimble and agile the incumbents are, the legacy banks are, I mean, they’re not stupid, right? But they do have a vested interest in keeping things the same way. And again, it’s going to come down to who do people trust. The people who are in the crypto community don’t trust banks at all, but the other 95% of the country, in the US at least, they do trust banks. There’s federal deposit insurance there as a backstop that increases that trust. It really is going to come down to where the trust points are. I mean, in trying to advise some of the organizations and communities that I work with — I think partnering with a bank to teach them DeFi is going to be what happens quite a bit because a lot of the dexes have got a ton of money.

They’re crushing it right now, and they’re making money hand over foot. What I’ve advised them is to go work with the bank and teach those bank tellers that we’ve all grown up trusting. You grew up in Youngstown. I grew up in Pittsburgh, and we all had our first bank account where we went in, and maybe we’re 15, maybe we’re 21. I mean, now the KYC rules have made it a little bit more difficult — but going in and seeing a bank teller or someone sitting at a desk in a bank location, in a bank outlet, and sitting and walking through all these things, because we trust them. Yes, that’s just part of a narrative. I’m not saying it’s necessarily better. It’s not, but going to the places that we already trust that have FDIC behind them; I think that is going to be most likely as it stands right now.

Part of the challenge for DeFi for newbies is that there’s no barriers to entry for DeFi. It’s just like 1995 with the internet where everybody with a URL popped up and had a new internet website business. People were investing in them left and right, hoping that, whether it was a private or public company, the value of their investment just skyrocketed because they saw it happening all around them. And there’s a lot of that going on where everybody’s got esteem built around DeFi. We’ve got to be able to get to some folks that are the winners that we trust so that people who don’t fully understand it can do it. And once we get there, the technical stuff will take care of itself. But once we get there, then you’ll start seeing a change.

And then you’ll start seeing new structured products where people can say, okay, I’m not going to yield farm, but I’m going to make the yield on a ten-year treasury is 1.75%. And what they’re paying for traditional savings is 0.02% or 0.2%, let’s say, since interest rates are up a little bit, and I can make 4% in a trusted manner. I think that’s where it’ll really take off. And I know that’s not crypto ethos. It’s not. It’s not as wild, wild west, but most people don’t like the wild, wild west with their money.

Laura Shin:

Right now, much of DeFi works on over-collateralization. How do you think that affects the market? And what do you think will happen as defined moves away from that?

Mark Cuban:

I think it’s great. I think it will be a challenge if it starts to move away from over-collateralization, at least in the next couple of years. Overcollateralization, particularly with the volatility of pricing for the assets that are being used, is a protection point that makes it safe and trustable. That’s what makes a smart contract work. Because if there’s not over-collateralization with a volatile asset backing it, then how’s the smart contract going to work? What’s it going to take in the event that, whatever it is, that loan that you took for 50% of your assets, what happens if those start to collapse because there’s a bad market turn? Then people lose trust in it. So I think over-collateralization is good.

I think the fact that people are trying to use real-world assets, IRL assets, to collateralize them, to extend DeFi, I think it’s challenging, and it will be for a long time because you can’t… legally, it’s going to be very difficult to assign all the legal rights you need to take control of a building, or a piece of artwork, a physical piece of artwork, or whatever it may be, out of a smart contract. I don’t see someone, all of a sudden, like the deed to a home being conveyed out of a smart contract because the price of the home dropped like it did in 2006, let’s say, or whenever, 2010 rather. So that that’s going to be a challenge.

Laura Shin:

You’ve talked about how things like insurance claims could have decentralized validators to determine whether or not a claim is legitimate, or you’ve talked about how financial scandals, like Enron, could have been prevented with decentralized networks of accountants validating general ledger entries. And I wondered since these examples require access to private data, how would that work? Would that be using a private blockchain, or is that using zero-knowledge proofs, or were you just spitballing?

Mark Cuban:

No, no, no, I mean you start with simple applications. So I forget the name of this company, but effectively they’re selling insurance for the real world. They use oracles that have precipitation and temperature for a specific zip code because that weather is available as an oracle through the National Weather Service or conveyed from the National Weather Service data. It’s not inconceivable that the Dallas Mavericks could say, you know what, if temperature drops to below zero Fahrenheit and there’s more than two inches of precipitation, which means it’s snowing and it’s awful cold, then there’s a good chance that people aren’t going to be able to come to a Dallas Mavericks game, so I’m going to buy insurance that I know the smart contract can convey. So, I work it out with the insurance company, and we memorialize it to a smart contract that costs me a thousand dollars, and I get paid $10,000 if this unlikely event happens, and it’s triggered immediately, once the oracle is refreshed and shows that these data thresholds have been met. That’s a great application. Now, in terms of extending that to validators, yes, you got to deal with very personal information, but you can break up that data, so it’s impossible to know who the person is. So it doesn’t need to know Laura or Mark or Jeff or Brian or Jake or Alexis.

It could be privacy through security, through obscurity, if you will. It’s just looking to say, okay, here’s a claim for tonsillitis, and this is what it shows on the insurance claim. And this is the information that is available from the insurance smart contract saying, here are the codes, here are the hospital diagnosis codes that are in play. Well, I guess tonsillitis is a bad example, so let’s say broken, broken arm, tonsillitis would be a dentist, but you get my point. You wouldn’t have any personal information, first of all. It would just be somebody with a broken arm if it doesn’t fit the requirements of the smart contract, and boom, then, you have X number of validators who have to agree. 

It’s kind of like what Optimism does, right. So Optimism in the way they approach it isn’t like the ZK side of it. With Optimism, what they do is they have enough validators, and they look for fraud, right? So if everybody is going through and looking to validate, and then there’s also people looking to see if any of the validators were fraudulent or however they exactly do it, then you can do these types of things. And now, all of a sudden, instead of having an insurance company who’s making centralized decisions with their only real goal to maximize earnings, as opposed to optimize health and just follow the rules that they agree to. Now, all of a sudden, with these distributed validators, you can do it quickly and automatically, effectively, and you’re going to have a lot happier customers and a much better healthcare system.

Laura Shin:

Great. So in a moment, we’re going to talk about NFTs, but first, a quick word from the sponsors who make this show possible. 

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Laura Shin:

Back to my conversation with Mark Cuban. So before we get into NFTs, I just wanted to ask one other thing that’s kind of related to DeFi and the other issues we were talking about with banking. On the Bankless podcast, you said, quote, “USDC issued by the treasury makes perfect sense.” And I wondered, did you mean like an actual central bank digital currency issued by the Fed? Or are you in favor, as former CFTC chairman Christopher Giancarlo is, of many private USD stablecoins, such as USDC, that compete with each other?

Mark Cuban:

Well, it really depends on. Yes, I’m for a central bank digital coin, a CBDC, but it really depends on the implementation, right? The devil’s in the details. If it’s a typical government product, there’s going to be holes and needs and problems with it, and that’s where the private sector will fill in. Jeremy Allaire can do his thing with Circle and USDC and as can others. But the reality is it makes too much sense now to not have CBDC. It really, and one of the points I’ve been making is, we lose money on every penny, nickel, dime, and quarter that we manufacture. That turns out to be hundreds of millions of dollars per year. And you could spend, you’d have to invest a little bit more upfront, but by transitioning to a CBDC, there’s so many things we can do that would make life better for our citizens.

We look at the stimulus program, and there were a lot of people that don’t have direct deposit into a bank account. Every single citizen, legal residents of this country, should be required to have some form of digital account, whether it’s for fiat and/or digital currency. And in the event, we need stimulus again, and it’ll happen again at some point, now just trans transmitting a CBDC to people, and it’s fiat, effectively, that’s a good thing for the country. It allows us to be a lot more agile and deal with problems that we run into. Then, of course, there’s the reduction of friction just in terms of the banking system itself and being able to move money around in ways that are far easier as we get money to banks. Now that doesn’t mean USDC and other stablecoins can’t do their thing, right?

They’re going to find better ways to implement themselves and to connect with all the applications that are out there. And that doesn’t mean…. look, this is a very Darwinian business, and what the government does, what the Fed does, will be probably 50% of what everybody wants it to do or suggests it should do, and the market will fill in the rest. As new applications and as technology evolves, who knows what quantum computing is going to do to all of this, right? We could be talking about a post crypto world fifty years from now, or a hundred years from now, who knows. Now I won’t be talking about it. You won’t be, but somebody is going to be talking about it a hundred years from now. And so, you have to start thinking in terms of that far into the future. There are great applications here. The entrepreneurs will fill in the rest, but you still have to always realize there’s going to be something different than we don’t envision that pops up.

Laura Shin:

Yeah. In a way, I actually think the central bank will be forced to innovate here because if DeFi really does take off and people are holding their savings in these crypto assets, then they’ll need to be offering something to motivate people, to hold onto their US dollars. All right. So let’s switch to NFTs, which are all the rage right now… 

Mark Cuban:

Wait, let’s go back. This is interesting. So you think that if people are given a CBDC… you think that because, well, a CBDC won’t necessarily be global, right? Because every sovereign nation is going to try to do something on their own, but since we’re the reserve currency, you think that the US Federal Reserve will have to compete in order to get people to use the CBDC that they issue as opposed to other stablecoins or other cryptocurrencies?

Laura Shin:

Well, it was more that I was just thinking: like when I’ve talked to people about DeFi, just my normal friends, not crypto people, and then they kind of poke around and then, they’ll be like, Oh, you can earn yield. Like, they’re kind of amazed by the interest. And then I can see that light bulb moment for them, and they are a little bit like, and these are people who otherwise have zero interest in this kind of thing, and I could see, Oh, they’re kind of like, Hmm, that’s interesting, maybe I should put a little bit. And I just realized like, Oh, once things like the ease of using a crypto wallet and whatever, all of that gets resolved, I could see a lot of people being motivated to, once they believe that, that the software works and they trust it, to just move a lot of their money in.

Mark Cuban:

But remember, see, the thing about that, though, is nobody gives something away for free, right? There’s nobody reaching into their pocket and DeFi saying, you know what… I want less you take for more. Right now, the ecosystem of DeFi is such that as these new businesses pop up and effectively, that’s what they are. They have to pay to get liquidity in order to be able to run their businesses. But, effectively, what they do is they just push the risk further and further out. Gary Gensler, the guy who’s going to be running the SEC, used to run the CFTC. And he said one thing that’s always stuck with me: the risk doesn’t leave the system. And that’s true for crypto as well. What the new DeFi protocols do and new offerings do, they just move the risk to a different token or a different liquidity provider.

They’re saying to an LP that, and they say right up front, there’s a chance you’re going to lose what you’ve staked here. There’s a chance that you’re going to lose it, and I’m using your money in order to be able to go get more of the liquidity and to get that, I’m going to be paying out in my tokens that we’ve created and that you purchased. If they’re not able to turn it into a really stable business, hence stablecoins, but if they’re not able to turn it into a stable business so their tokens retain their value, somebody’s going to lose. And that’s part of the challenge. In a lot of cases, DeFi is still a game of musical chairs. That’s why I said earlier: you have to be careful because it’s not until… somebody has got to create something in order for there to be a sustained return that brings new money, new, validated money into the system.

You are starting to see that with a lot of the business applications. I mean, that’s where Polkadot is pretty cool, right? Cause Polkadot is really designed for unique applications on people who want to modify the blockchain to their specific vertical need. That’s where you create productivity. If you were going to, whether it’s Ethereum, Matic is used for a lot of NFT stuff — If you’re going to create new applications that create productivity over FinTech applications. So, there was old banking then came FinTech, now there’s open banking, and now there’s DeFi banking, right. They all compete. And when DeFi banking does a better job or crypto with blockchain applications, it does a better job than FinTech or traditional digital applications, like a DocuSign, as an example, and or an Airbnb, and their software. If crypto eats the software that is eating the world, then DeFi can really perform because those software applications that are being used in applications, on blockchain, that are creating new products, then those tokens will create value and get more valuable.

If they don’t, if it’s just purely a DeFi play, where it’s like, look, I want your money, I think I can get enough people trading money, and making money using these trades — It works until it doesn’t. I don’t think anybody disagrees that a lot of these, a significant percentage of these DeFi plays, are going to go out of business. It’s the ones that actually have a foundation and offer some productivity over what was done before. So you see it, like, I invested in Injective Protocol, and they are a distributed DEX that uses order books, as opposed to being an AMM. That’s a productivity enhancement where you can trade with perps a lot better than you could trade the way things are done now. And if they’re able to become a better place to trade the equivalent of stocks, then their token will be worth more because they’re creating value that is more valuable than the incumbents are creating. If that all makes sense.

Laura Shin:

Yeah. I think what’s interesting is like, in a way, I think what you’re describing, in terms of whether or not these things are sustainable, is that model that has come from startups where a lot of the early growth is subsidized. And what’s so interesting here is that because these are decentralized networks, and when you throw in the governance… but that’s a question for you. Obviously, with your experience with all these different startups you’ve done, and then obviously working with Shark Tank and investing in those when you think about this new decentralized model, how are you evaluating whether or not you think something will be successful? How is that different from what you’ve done so far?

Mark Cuban:

So that’s a great question. And by the way, Shark Tank is on Friday nights on ABC. But, it’s really, really interesting. You talked about the subsidy model that is kind of like the Silicon Valley way: raise a whole lot of money, subsidize the product, and then make it up some other way. Create a sticky product that everybody has to have, lose a lot of money on it, and then eventually you’ll make money on it. I’ve never been a big fan of that. And if you watch me on Shark Tank, I don’t mind losing money at the beginning if you have a direct path to profitability. But I’m never a fan of, okay, let’s just get a ton of customers, and we’ll figure out how to make money later. That’s never good, even in the infancy of an industry.

You got to know exactly how you’re going to get there. So when it comes to DAOs and how to deal with governance, it really depends on the particulars and the type of applications that are in place because some forms of governance are just based on who has the most tokens. And at that point in time, everything can get bastardized. You look at some of these… these worlds, these unique worlds, and the games that are part of them right now. Those have been around a long, long time. And historically, what’s happened is that the people who are the most active users end up gaining the most control and massaging it to look the way that they want it.

And that’s a challenge for all of them. I’m excited about Axie Infinity. I think it’s really, really cool. But it’s really, really cool because there’s a variety of different options with the governance, and they’re able to sell sponsorships and advertising and bring in external money, so they’re not only dependent on the players. Because they bring in external money, that means there are ways for players who don’t have any money at all to start participating and actually make a little bit of an income no matter where they are in the world. But the key to that all working is bringing in external money. It’s kinda like what Fortnite does with V-bucks, right. And, and other games, with the currencies that they create that have no place, no value outside of the game.

Well, with this, it changes it because, with the tokens, it has value outside the game. But in terms of governance, you have to be really, really careful that the dominant users don’t dominate governance because they’re all going to conform it. It’s just like a shareholder owning 51%, or controlling a board, or having enough of a stake in a company that has a lot of shareholders and not a lot of big shareholders and really influencing all the outcomes. It’s really, really hard to manage over time. And we don’t have a long enough history to understand it. So it’s something that I try to be very careful about and understand completely when I get involved because, just as positive as decentralization can be versus centralized corporations and communities, it can have a completely different impact where the loudest voices can change things so that the smallest players… It’s like we see in politics. Politics are politics, right? People strive for power, and power corrupts. And absolute power corrupts absolutely. And distributed governance isn’t necessarily different because most people don’t participate.

Laura Shin:

So it sounds like what you’re saying is that DAOs won’t really be effective or solve these issues until we have blockchain-based identities to prevent sybil attacks.

Mark Cuban:

Well, it’s not even just that. It’s just a lack of participation. Some people play the game cause they like the game. Some people get involved with the token cause they just want to make money, and they got their real lives to deal with. They don’t want to be involved with trying to determine what to add or what not to add. Should the DEX, the distributed DEX, add this token or not add this token. So, it’s your token. Why wouldn’t you try to go in there and influence all the people to vote to add you because there’s so much money at stake? There’s a lot of the new ones to elements of governance that traditional real-life politics have that apply here as well because, just like most people don’t vote in elections in the real world, most people don’t use their governance tokens in the crypto community.

Laura Shin:

Do you think delegated proof of stake or, any kind of like liquid model where you can delegate your votes? Do you think that resolves it or not? Is that still part of that?

Mark Cuban:

No. Think about your friends that you were talking about in DeFi that want to make their 4%, 8%, 12%, whatever it is. They don’t care which tokens they add, and they don’t want to know. They don’t understand because they got a job to go to and they got their vaccine, and they want to go out and have fun. The last thing they want to do is stay back in and read about the governance requirements of the tokens. They just bought to make some money.

Laura Shin:

True, true. From your comments, I definitely feel like, yes, you understand normal people probably better than the average crypto person. So let’s talk about NFTs. What is your thesis when it comes to your NFT investments? What characteristics do you believe will separate the winners from the also-rans? And you can even talk about why you chose to invest in Mintable, SuperRare, OpenSea, et cetera, as opposed to us and the other platforms,

Mark Cuban:

A couple of things there. In terms of what NFTs I buy, I buy the things that I like to look at. So if I’m on Mintable, I love to go on Mintable, their gasless store, because the reason I invested in Mintable is I went there first because it’s where you can mint things for free. Until you sell it, there’s no gas fees. It goes right into Mintable’s gasless store, and they have it so that you can go through thousands and thousands of NFTs there. And because it’s not right on the blockchain, it’s not showing up across all the different platforms. That’s where I love to buy things. There’s things I go in there, and I think they’re just stunning.

And they may only charge the equivalent of $25. The gas fee might be a hundred dollars once it gets minted on Ethereum. But at the same time, it would have cost me a whole lot more than $125 to buy it on OpenSea or on any of the other marketplaces where they’ve already been minted to the Ethereum blockchain. Mintable uses Zilliqa as well, just like OpenSea is using Matic, and others are using Matic. I like to go there as well because the fees are very low. So my orientation is let’s go find things I like. 

I started this thing called lazy.com, and I have it in all of my social bio’s now. I’ve put it out; I’ll tweet about it and send it around. I want things that I’ve pinned to the top to look really cool and represent me cause that’s my own personal gallery. I collect as opposed to speculating, and they’re just, so there’s so much, so, so, so much talent out there that is looking for a home that I kind of try to look for places where other people are not.

Laura Shin:

So lazy.com, for people who don’t know it, is literally just a website that displays the person, their URL, all of their NFTs. But actually, so when I asked about your NFT investments, I meant like in the platforms. 

Mark Cuban:

And I just wanted to get the little plug there for lazy.com.

Laura Shin:

Which is a great site, by the way. I do think it’s a very clean design. Did you build that yourself? 

Mark Cuban:

I laid it out and everything, but I didn’t have time to code it myself. So I had one of our guys code it, but yeah, it was all my design. Oh yeah, it’s crazy cause we’ve only been around ten days today, and we had, as of yesterday, 120,000 users. So it’s crazy. Anyways, in terms of investing, so I invested in Mintable.app for the reason I just said: there are a lot of undiscovered artists on there that are putting up their work because it’s the one place where you can go in there and mint something for free, and it doesn’t cost anything until you actually sell it. And it’s your way to then, show off and learn and really have a chance to sell with no cost. So I like that, and their traffic is just exploding.

I invested in OpenSea because OpenSea, I looked at it initially as a marketplace, but they’re really the API for all marketplaces. They’re kind of the be-all, end all behind the scenes that makes everything work. At lazy.com, if you click through if you go to lazy.com/mcuban, there’s a couple of things that I have that I have put for sale. When you click through, it takes you to OpenSea, and that’s why we use it. It’s not an oracle, it’s an API that allows someone to buy, and it’s all managed and handled by OpenSea. So I liked the fact that they’re behind the scenes for all of that. I invested in SuperRare cause they get great products. They get really great high-end and super rare NFTs that are out there.

Let’s see where else. I invested in Niftys because they’re trying to create a social network, and there are some others that are working on social networking, but I think they’ve got a really great team to put it all together. I invested in Esprezzo. If you go to markcuban.com and you’ll see there’s a blockchain link, and you can see all the blockchain companies related to companies that I’m invested in. Esprezzo is kind of like an, if this, then that, if you’re familiar with that product where it just continuously reads the blockchain and allows you to set triggers that send you reports or initiate different actions, which, for somebody who’s trying to invest or somebody who is trying to understand markets and track them, it’s a great tool. And there’s a couple of others that are going to be closing very shortly.

Laura Shin:

When the NFT revolution fully plays out, like what do you think will determine which platforms others…?

Mark Cuban:

Who’s going to be the winner? So first, I think there’s going to be a fair amount of winners because you’re going to see a lot of this verticalize, where they’ll each have their own area of expertise. But, I think, probably within the next three, five years, you’re going to see a huge consolidation where there’s somebody who was on the outside, looking in, where somebody who got bigger that we didn’t expect to get big, and they buy up the others to get their NFT base and get their customers, et cetera. You see what Dapper is doing. It’s interesting because Dapper — and actually all the competitive blockchains, because it’s kind of like a death war with blockchains, right. Who’s going to survive? Flow, NEAR, WAX, crypto.com?

I mean, there’s just so many! Matic, et cetera, et cetera, et cetera. It’s hard to say that all of them are going to be equal size and have equal levels of success, but they’re all doing fairly well right now. And because it doesn’t take a lot of overhead to manage these, they’re all, for the most part, making money. And I think because of that, they’re in kind of a death war right now. They’re all starting to spend a lot to get really high profile people and high profile NFTs on their platforms in order to be… I left one out Bitcoin Origins with Jeremy Born; those guys are incredible too. So if you go on WAX and you look at Bitcoin Origins, they’re an investment. They’re great storytellers. I don’t want to leave him out, he’d be pissed at me. But you see my point, we saw in the early days of the internet as well, there’s some businesses like blockchains that are zero-sum games.

The minute that Ethereum gets to 2.0 if they can handle, and I’m just making this is up, a hundred thousand transactions per second, then you have to ask what happens to Binance and NEAR, and some me of these other things when there’s every reason to just start building layer 2 on top of Ethereum, 2.0. Now there’s a lot of people who don’t think that that can happen, but to go back to my original point, all those blockchains are spending a lot of money to really get people to use their blockchains. They’re using NFTs as an entry point by really trying to bring in the highest-profile celebrities, and creators, and artists, and musicians, et cetera, to use their platform and to get people to buy and sell NFTs there. They’re not all going to win. And that will lead to consolidation. That will lead to some people going out of business. In a few years, I think Ethereum and maybe two or three other blockchains will have their place, and those will be the winners.

Laura Shin:

And then let’s talk about the NFTs themselves, which, as earlier, we discussed, can be built with their own little business models built right in where the creator can specify what their cut would be for any resales. I heard you mentioned things like 30%, 50% — I saw for one of your NFTs, your royalties would be 15%. EulerBeats does 8% to the original LP owner. What do you think will ultimately be the optimal kind of business model for that, and are there any other metrics or parameters that need to be figured out to really make NFTs take off?

Mark Cuban:

It really depends on the product itself. So like a Maverick’s ticket to a game, right? We want the people who bought the ticket to go to the game. There’s no real great value for us to have resale. We want fans coming in that are really excited, and that are Mavs fans. We don’t want them to sell it to the fans of the opposing team. What happens a lot is, and this happens to every team, a Mavs fan will buy a season ticket, but they’ll talk to a Golden State Warrior fan and say, this is a really in-demand game — I’m going to sell it at a huge premium. And what ends up happening is that a Golden State Warrior fan comes to a game and cheers for the Warriors, right?

We don’t want that to happen. So for the resale market, it wouldn’t be inconceivable that for our highest demand games, we asked for 75% of the resale because that would disincentive people from reselling. And if they decide they just want to make that 25%, great, we’ll take our 75%. For the low-demand games, then we might only take 10% because, you know what, there’s not a lot of fans of this particular team, and we just want people to come to the game. We’ll use a different algorithm to determine what the royalty is going to be. And for a concert, it really doesn’t matter who shows up, but it’s going to be a fan. So if it’s a high-demand concert, you might ask for 50% because you don’t want that.

You want fans buying it, and by definition, it’s probably only going to be a fan, and you want them showing up. You don’t want the resellers to get involved in it either. And this applies to the Mavs as well because there’s a whole secondary market business where brokers come in, try to buy up all the tickets, and then resell them and make a markup from the retail to what the supply and demand set the pricing at. I could see for a concert at the American Airlines Center in partnership with Live Nation, AG, or whoever, we set the royalty at 75% with half of that going to the artist and half that going to us or depending on whatever we contractually set because we don’t want brokers to act as intermediaries. We want fans to get access to the tickets.

Laura Shin:

Yeah. I now understand better. Cause as a creator myself who keeps looking at the NFTs and wondering how I’m going to take advantage of this… I was like, well, what would I set the royalties at? 

Mark Cuban:

It really, it really depends. So like, look…

Laura Shin:

Cliffsnotes.

Mark Cuban:

Yes, yes, CliffNotes. You buy them for your class or a textbook. You buy them for your class, and then you don’t need them anymore. It’s perishable. If you’re the publisher of CliffNotes, or you create your own, and you’re an entrepreneurial kid, and you create your own cliff notes for your class, and the class stays the same from year to year to year, for the most part, you want to set the royalties relatively low because you want people to be able to sell it over and over again. That creates a perpetual royalty stream. So if Laura is doing a guide to crypto and it’s an introductory guide video to crypto, and you know that once somebody watches it the first time, they’re not going to need to watch it two or three times.

There’s no reason for them to keep it forever. If it’s just a traditional YouTube video, they would just watch it and go on, and you would try to sell them ads. Well, if you yank it off of YouTube, you put it on your own NFT tube, and you sell it for $4.95, or $2.95 cents, on a low transaction fee blockchain. Then you can take your 10% royalty. And if you’re making $.50 each, because Mark bought it and Mark’s got three friends that he really thinks should watch this and I send them an email because I posted it on lazy.com and there’s an easy way to send it to my friends to buy it, and they buy it, and then their friends do the same thing… it has its own little viral impact. Perishable content like that, perishable, meaning that you just need to watch it or read it once or twice, and then you don’t have any need for it — those types of things will have low royalties, but if you get the right marketing angle, it can be sold again and again and again.

Laura Shin:

Yeah. I love how you describe how really unsexy industries can be transformed by NFTs. And I just wondered, are there any others that you kind of have your eye on that you think would be good to be disrupted? 

Mark Cuban:

Yeah, I mean, DocuSign I mentioned, right. Anything that’s documentation driven where it’s driven by, if this, then that rules. Anything that you can boil down to a very simple, if this, then that, you can put it in a smart contract. If you can put it in a smart contract, you can destabilize the incumbents and make it a lot easier.

Laura Shin:

When you say if this and that, can you give an example? I’m not sure what you’re saying.

Mark Cuban:

So we’ll use the example for the insurance that I did before. Or better yet, a ticket. If the events over, then there’s no additional features that are made available. If the event hasn’t happened yet, then you might get access to an NFT that’s minted during a Mavs game. I can have an Oracle that shows the time, right. Let’s just say that you buy a ticket to a game, and part of the unlocked thing that happens — there’s content or features that are unlocked the minute the game starts. So we have an oracle that we read that shows that this Dallas Mavericks game is played and started. And you have this NFT in your wallet, and we’re able to say, okay, here’s the highlights from the first quarter of the Mavs game.

And we mint them and send them to all the wallets that are at the game. And then now, all of a sudden, you’ve got these additional NFTs that you can keep or sell or do whatever you want with. And then once the game is over, if the game is over, then we stop sending it to you, and now you have these things in the wallet. Now we might make it a different type of collectible where we send you just one single NFT that shows the score, the game, a box score of the game, whatever it may be, that’s minted as a memorial collectible that you’re able to keep or sell from there.

Laura Shin:

I love it. You also talked about Fireside chats, which is like a Clubhouse chat that turned into an NFT for five to 10 bucks. And it just made me think that how much, like, how much demand do you expect there would be for such things, because, in the end, wouldn’t people end up with a lot of basically kind of worthless NFTs laying around? Or is that just what you think the future will look like?

Mark Cuban:

No, it’s like how many books, how many MP3 files do you have on your phone, right? Or did you use to have before streaming? How many pictures do you have on your phone? Look, one of the worst days in a person’s life sometimes is having to figure out what to delete from their phone cause they ran out of storage. The point being that we value digital things a lot more than we realize right now. How many books do you have in your bookcase? Some of us like to read physical books, but I’ve become more of a Kindle-type person. And, maybe there’s a way to attack Amazon cause you can buy and resell your books on Amazon, but it’s very centralized — Kindle books. Kindle files for resale are available, but it’s very centralized.

There’s no reason that an author if you’re self-published, and you want to put your book out there, and you can do it as an NFT and allow for resale, et cetera — there’s no limit, right? Particularly if it’s just an NFT that you have in a wallet, and you can have an unlimited number of wallets. You can have a wallet for books. You have a wallet for pictures. You have a wallet for music. You have a wallet for tickets. You have a wallet for business applications. You have a wallet for textbooks. You have a wallet for whatever that comes along, right. Family mementos, special dates of my life, whatever it may be. You just create a unique wallet for each one. There’s no there’s no place where it seems cluttered. And as long as IPFS and the different storage hubs for this all sustain themselves, then it doesn’t take a lot of space. And even if it moves to the point where there are blockchains that specialized — the zero-knowledge, the ZK type stuff, where it’s just one single file stuff, and I don’t know how much media they can store there, where it’s just all compressed significantly, kind of like zip for blockchain. Then, all of a sudden, that makes it even safer and makes it even more sustainable if you have that choice either to store it locally or store it remotely.

Laura Shin:

And you’ve talked about how community is everything for businesses or for anything to succeed. And yet, in the Bankless podcast, it seemed that you were cautioning celebrities or athletes or creators from doing social tokens around themselves. I wondered why.

Mark Cuban:

Yeah, because it’s all about expectations because your community is important to you. The last thing you want to do as a celebrity, or somebody with a following, is to create an expectation that with my token, you can make money and then not deliver. So I don’t want a Mark Cuban token that one day is worth a thousand dollars and the next day is worth a penny because then my brand effectively is telling me that I’m worth… the community is telling me my brand is worth a penny and I don’t know what external forces have caused that to happen. And it could well be that somebody bought a bunch, and they just sold it all just because they don’t like me. There’s just so many things that can happen when these are treated as asset classes. Now, if there’s no value to it, and you say they can’t be traded, and it’s just a verification token, that’s different.

Laura Shin:

All right. So last question, you’ve talked a lot about how the internet revolution had to do with physical developments, like laying down fiber. And now that that infrastructure is built. I wondered how you imagine that will change the development of crypto. Will it just be much faster or, how do you think that will affect things?

Mark Cuban:

Crypto really isn’t limited by speed. In the early days of the internet, bandwidth was everything. Trying to stream — when we first got started, and it’s an interesting comparison in terms of complexity. When we started streaming at AudioNet, you had to have a PC. There was maybe a laptop, the laptops were enormous. You had to have a 56K modem. You had to have a TCP-IP client. You had to have a dial into your internet provider. You had to have a media player. And then you had to go to the website, which had its own level of complexity in order for the other side to work. Those comparable levels of complexities exist now, but we had the inhibitor of bandwidth. I couldn’t show you a movie on a full screen unless you had multiple megabits of bandwidth which hardly anybody had, even corporations. Now there’s not really a bandwidth limiter. There’s not a processing speed limiter. There’s only a performance limiter or delimiter on the side of the provider or the blockchain itself. So I don’t think technology is an issue until we get to quantum. Then you have to start thinking about what can be hacked. That is not a question for today, but that’s a question for the future.

Laura Shin:

All right, well, this has been super fun. Where can people learn more about you and your work?

Mark Cuban:

You can go to markcuban.com. You can see all the companies that I’ve invested in, including all the blockchain stuff. You can see my NFT collection at lazy.com/mcuban. And you can hear on Shark Tank, Friday nights on ABC. I’ll be the one talking about blockchain and all this kind of stuff and asking companies what their crypto solutions are going to be.

Laura Shin:

All right. Well, thank you so much for coming on Unchained.

Mark Cuban:

Thank you, Laura. It was a great, great interview. 

Laura Shin:

Thanks so much for joining us today to learn more about Mark, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Nuss, and Mark MurdocK. Thanks for listening.