This is Eric Golden and my guest today is Gary Coover. Gary spent 8 years building Samsung’s innovation arm, Samsung Next, before he was drawn into the Web3 world. Today, he is the Chief Operating Officer of Superlayer, a venture studio focused on building Crypto startups. We start this conversation by analyzing what went wrong in the industry over the past 2 years, and why Gary advocates “Burying the Rails”. We then talk about Superlayer’s attempt to build an economically sustainable and inflation-resistant token model within their products, Hotline and Trophy. Please enjoy my conversation with Gary Coover.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes
(00:01:35) - (First question) - Things he got wrong while trying to launch his new business
(00:03:27) - His view on NBATopShots as an inflation failure versus a crypto failure
(00:05:48) - How his businesses differ from previously attempted token based companies 
(00:09:50) - Determining whether a founders business in capable of tokenization
(00:11:54) - He tells us why a token is necessary for these businesses to be successful
(00:13:52) - Examples of returning value to the wrong group of people
(00:18:32) - He explains how users pay for content on the platform
(00:19:33) - Using tokens for in platform purchases instead of centralized currency
(00:21:18) - How the inflation economics work behind the token model
(00:22:58) - Handling content on the platform that is deemed illegal or unethical 
(00:24:40) - Developing trust with creators that feel jaded from the past 
(00:27:00) - How he sees the business developing from a tokenless model to one with tokens
(00:28:46) - How he approaches building the right tokenized economic structure
(00:30:41) - The ability to charge by preference in either tokens or dollars
(00:32:58) - Pros and cons of not having control over market volatility 
(00:34:49) - Which of his companies are currently using token based currency
(00:37:48) - A look back at things he is proud he got right and still believes in
(00:40:28) - What he sees in the space today that gets him excited
(00:42:11) - What he is most excited to build over the next six months and six years
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Web3 Breakdowns is a series of conversations exploring innovation in the decentralized internet.

Each episode, we will focus on a different topic.

We will cover NFT projects, crypto assets, blockchain-based protocols, and businesses being built with Web3 architecture.

We will talk to founders, artists, investors, and influencers to understand this emerging ecosystem.

and a library of content to continue your learning, visit joincolossus.com.

All opinions expressed by hosts and podcast guests are solely their own opinions.

Hosts and podcast guests may maintain positions in the securities discussed in this podcast.

This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions.

This is Eric Golden and my guest today is Gary Cooper.

Gary spent 8 years building Samsung's innovation arm, Samsung X, before he was drawn into the web 3 world.

Today, he is a Chief Operating Officer of SuperLayer, a venture studio focused on building crypto startups.

We start this conversation by analyzing what went wrong in the industry over the past 2 years and why Gary advocates burying the rails.

We then talk about SuperLayer's attempt to build an economically sustainable and inflation resistant token model within their products, Hotline and Trophy.

Please enjoy my conversation with Gary Cooper.

I don't know if it was the word of the year, but everybody was talking about it.

Everyone had high ambitions of it could solve the world's problems for creators, for artists, for connecting people.

And clearly in hindsight, it was a bubble and a lot of people.

When a new technology starts to gain adoption, people get ahead of themselves.

So I'm curious from your time, from starting super layer, going back on it, I'm sure you've done a lot of reflection.

What were the things that you got most wrong as you tried to launch your new business?

Cause it was only 2 and a half, 2 years ago that we got going and it feels like we've gone 18 directions.

The market's got 18 directions since then, but let's bring out the bloopers reel.

So I think I'd say first and foremost, I think you're right that crypto Web3 was supposed to cure world hunger, cure cancer, let alone revolutionize how businesses are built.

And I think what we've learned is that crypto is basically an additional stack on the product you already had to build.

It's just then you have to be token economy built underneath of it is the rails underneath it is an additional product you have to build.

So it's not like there's a revolutionary new way of building a product.

And I think what happened was people were so fixated on building the token product that they forgot that, Oh yeah, if you're building Twitter, you actually have to have users and you have to have a business model and people have to be wanting to be a part of it.

Just showing off some sexy rails was not a secret to success.

So I think that's 1 where there's definitely an over-rotation on crypto as a cure for cancer.

Maybe another reflection is tokenized consumer products were really only built for gurus.

In 2021, the market of people in Web3 was so small that the narrative was being driven by the purists.

So you take the example of NBA Top Shots, which is probably 1 of my gateways into crypto.

They built a really compelling consumer product.

It was easy to use whether you knew what the hell you were doing in crypto or not.

You logged in, they create a wallet in the background for you.

People understood trading cards, digital trading cards, not a scratch, great consumer experience.

And then they basically got shamed by everyone in crypto because it wasn't truly on chain.

It was almost like the held up example of fake Web3 or fake crypto.

So then we went through this whole rotation of, okay, well, great, everything's got to be on chain, everything's got to be perfect.

And I think what we realized is that TopShot's got a ton right.

And actually the starting with this has to be an amazing consumer experience first with the crypto rails far in the background.

And so I think for us at SuperLayer, that's where we're building our projects off to date.

But certainly I think some of our early projects were probably 2 crypto rails forward.

And I think people believe that mentioning the token was its own value prop.

If you were to say we're going to build crypto Twitter, which was an early project we were building, just saying, yeah, there's going to be a token for this Twitter project.

And so I think the idea of a token being somehow differentiated or something that would draw everyone in was just very much a moment in time during this ripping bull market.

And the last 1 that we can probably dive into in much more depth, because it's the fundamental underpinning of what we're building with our companies and super layers is inflation-based token system.

And this is the thing that probably gets the most critique, which I agree with, which is most of the consumer projects, take Axie or take Stepin, were high inflation, high growth.

And if you're going to make a bet, that if inflation is high and constant, And growth can start out outstripping that.

And that's when we saw these massive run-ups, but eventually that growth merry-go-round slows down.

But if that inflation is constant and that you're screwed, that's where we saw these unsustainable models.

I think everyone knew somehow that it wasn't a question of if it was a question of when, and it was just who can suspend disbelief longest and ultimately it all came crashing down and so I think learning from that is certainly a big driver of where we've taken our companies and super layer.

Just to dive into that further, the sexy rails, I'm going to use that as someone who's built something, I would tell people that when you build a business or a product, you're building a skyscraper and everybody wants to be the interior decorator to the penthouse.

And I told people that after building a business, to me, the people that I know that are other builders, they're like, I know where the sewer lines go.

I know how to make the electrical lines go to the right spot with the most efficient wiring.

All the ugly rails is what makes beautiful skyscrapers.

But the thing is, we don't tell people about them because that's not what sells the product.

And the funny part that you are mentioning that really resonates with me is that we brought the rails forward.

Nobody cares that I made the database go faster by doing this thing.

There's a bunch of horribly hard infrastructure problems that nobody cares about.

And when you're selling the rails, that clearly was something that goes ahead of me.

I want to combine 2 first, the top shot inflation, then to get your take on this is that because people are so excited about crypto for whatever reason, it could be the money, it could be their passions, it could be their ideological views.

It does get people pretty fired up about things.

And when it goes wrong, like the top shot example, I totally hear you.

It was consumer facing, but to me that felt like an inflation problem.

And then it got slapped because it didn't do well.

They wanted to say, well, you weren't crypto enough.

So do you put that in the crypto category or do you put that in the inflation category?

Well, I think your take on it is the right 1, which is I think people saw the rise and fall and they said, oh, well, the fall was due to the fact that it wasn't crypto enough.

I feel like we're in the space of crypto, which at whatever point you got in, you always felt too late.

And I'm sure this is the same in social media.

And so we're in 2023 and we are still incredibly, incredibly, incredibly early.

But it's hard for anyone entering the space to feel like, oh yeah, I'm still so early.

And I think what happened with Top Shots is the same piece where people wanted to believe that, oh, it's because it's not deep enough crypto.

No, it's really just, it wasn't that well-designed from an inflation standpoint.

Even, I think we've seen a lot of that with some of the NFT stuff as well, where I was looking at Zed Run again the other day.

For those not familiar, it's a horse racing and a T-base game and you can breed those ponies.

And turns out when you can breed ponies like rabbits, that may not be sustainable.

And so there's new things going after similar spaces where it's yeah, you probably need to let it supply a bit.

So on the sexy rails, you have this unique experience where you've done a lot of things now you're for this venture studio and building these companies yourself.

How do you push that to the back yet explain why this is different?

Because I do think there's a lot of when you pitch your ideas, people are asking.

I think 1 of the greatest questions is, does this have to be decentralized?

So how do you answer those benefits of why it makes sense for the businesses you're building?

Well, I think the question of bringing it to Sexy Rails.

And as a venture studio, we basically have 2 customers.

We're basically, we're going out and co-founding companies.

Our team of 10 to 15 at SuperLayer basically is your co-founding team.

So we go find an amazing domain expert in a certain space, we work together to launch this business.

We want that co-founder to think those rails are sexy as hell, because you fundamentally need that to build a successful tokenized business.

But what I think we did as a whole as an industry is that we then put that same sexy rail belief on the consumer.

And let's be real, the consumer doesn't give a shit about sexy rails.

In your skyscraper analysis, they want to be in the penthouse.

For me, it's, yeah, the consumer wants to ride the train.

They're not going out and expecting the rails afterwards and high-fiving each other.

And so I think that's probably the tension that we have is the rails have to be right.

And actually the best test of are they sexy to us is if the user, especially like the new to web through user doesn't even notice them.

And that's, I guess, to point to the top shot success story.

That's 1 of the things that did really well is people didn't even know they were using it.

I guess for the ideation, are you guys coming up with this new business idea yourself and then go searching the founder or founder inbound?

And then once that idea happens, is there ever a discussion of does this need tokenization or not?

Yeah, I would say it can happen both ways.

Whether a founder approaches us or we approach founders, the vast majority of the time we're approaching founders.

And so that thing gets to your second point is how do these ideas come about is we as a team need to have green conviction that it should be decentralized.

And so I'd say that's pretty early on in our concept validation.

1, we have to believe it's going to be a best done tokenized business.

Second, we are a venture studio and the way we're able to create more success for our companies is to effectively basically draft off of each other.

So there's a venture studio, Atomic, which built in the consumer space, which is fantastic.

And 1 of the projects they launched is HIMSS, the product for men.

And so they built that incredibly successfully as a DTC brand.

Well, what was the next business they launched?

And those, hoarding over the lessons you learn from 1, acquiring that customer, how to nurture that customer through the funnel, that is part of our value prop to founders.

So Let's say we build a tokenized social company with an advertising model.

If there's another business that we then go launch that has an ad supported model as well.

We're really taking those lessons on, well, how do you best build a token economic model that supports an ad model to drive revenue we are ideally drafting up so our portfolio shouldn't be a.

It should both be purely, yes, this is best done tokenized.

And these businesses make sense together because what you're learning from project A can be, you're porting over 60% of those lessons to project B, because that's better for both those founders.

Trey Lockerbie, MPH So why tokenize at all?

That big question of when I meet companies, they pitch me on different things.

I would always ask, okay, why are you doing this this way?

Why is a token necessary for your business to be successful?

I think to me, tokenizing is most attractive, most aligned when you're trying to align incentives between the user of a product and the business.

So if you take a traditional equity business, it needs to generate enough revenue to generate a profit, and that goes back to shareholders.

Adam Draper Those shareholders are typically not the core users of the project.

Even take Facebook with 2 billion users, I'm guessing not all 2 billion users are shareholders of Facebook.

Adam Backman And so the opportunity with a tokenized business is to have the users of the product that are generating value on the platform.

Again, I'm speaking from the consumer mindset, is to have them take home more of that benefit.

So again, Twitter right now, there's an ad on every fifth tweet.

So we have a business called Hotline that is basically web 3 only fans.

And in web 3 only Fans takes a 20% commission.

That was basically a tax on creators that is taken by the platform to reward shareholders that are probably not creators or users on the platform.

For Hotline, it's 10%, but ideally that goes down to 2% because the difference, we don't have these equity-based shareholders that are not users.

Everyone who is on the platform, the founders, investors are incentivized by the token.

So ultimately we want high demand for that token to demonstrate extreme utilization of that token.

And so the fee we charge on that goes down and down, and that's rewarded by ultimately the token price going up.

And that's just that incentive alignment that exists for tokenized projects just is, to me, it's a perfect fit for a lot of the revenue forward consumer models.

Yeah, man, I'm excited to jump into this, but I was having a conversation this morning about like craftsmanship on Twitter.

And it made me think that in a capitalistic game, you're most likely just going to go to the lowest cost.

When shareholders have value, it's their bottom line is profit margin.

And so the idea is that it's a reallocation of capital that those shareholders are in some ways, disinterested parties, they don't have to care at all, or even use the product to own it, but then they decide, well, You might not be smoking cigarettes, but you might have a big stake in Philip Morris, then decide when to reallocate to Costco.

This idea that the users benefit clearly for things like businesses that don't just have a razor thin margin where it's just a race to the bottom and there's really some like high value ad, there's something there.

I can see where that goes flawed, where when there's incentives you don't want.

Can you think of an example where that's great that you're returning value, but it's the wrong group of people to help have governance decisions or deciding what to do as a company, how do you split that decision-making process?

I think probably the most of the consumer projects we're launching have a Dow at some point that has some control over the usage of the token.

And I think again, going back to the early days of Dow's, some of the biggest flaws were, well, what does the DAO control and when does it get, basically, when do you decentralize?

And I think group-based product management is probably an easy, obvious, terrible flaw.

And So I think decentralizing too early is certainly a flaw, but I think things like figuring out the best usage of the token is something that can be best done by the most active users that are, again, in that DAO that own some portion of the token.

So I think from a governance standpoint, it makes sense to figure out where is there the highest alignment because ultimately none of these consumer product works without users trying to focus governance on.

For example, if there's token rewards, how do they get allocated back?

Getting the Dow as part of that, that makes more sense.

Anything around feature creation, basically anything with a lot of creativity is probably not best done in the group.

So it's hard not to go back to the first business because I've had friends, specifically 1 friend who has pitched me this idea numerous times, and I've had other people talk about this only fans for web 3, which I did not know was 1 of the companies.

This is an idea that hadn't been thought about, but what got you guys into this idea and how are you trying to differentiate it?

This was 1 where I'd say it wasn't us or the founder.

It was the industry itself that pulled out.

And I think it was in mid 2021, basically creators were de-platformed on OnlyFans.

I think OnlyFans basically said because of MasterCard processing rules, We can no longer accept credit card payments.

We're not going to do basically adult creator stuff.

And that was a shout out to the crypto world of, holy shit, this is a big idea.

Because when you think about, well, what can you do with crypto rails?

It's all of the concerns about censorship are certainly a big part of it.

Also to the question of when does it make sense to tokenize?

Well, there's a lot of times swiping a credit card is much more advantageous, but when you want to create an experience that's not governed by arbitrary rules, by Visa and MasterCard, tokenizing makes a ton of sense.

And so I think when you think about Hotline versus OnlyFans, I think from a creator standpoint, there's certainly a higher take rate.

They're also less limited in which kind of geographies they can work with.

And also, fundamentally, they become owners in the platform rather than renters in a sense.

And it's not yet tokenized, but we're moving towards that.

So if a user basically brings a $10 tip, let's say they swipe their card and they give a $10 tip, we would take 10% of that and the creator would take the remaining 90%.

And a lot of that would be in the hotline token.

The creators also become advocates on your platform and they can participate in the value that they are creating.

In the same way that I'm trying to think of like, what was it, Kim Kardashian or the early proponents of Instagram.

Yeah, it Sure would have been nice to, if they were the ones really driving the value of adoption to be part of this.

We can therefore provide a home for content that might've been banned arbitrarily by other networks for other reasons, take OnlyFans.

So there's a lot of different ways that we can differentiate from only fans.

And actually 1 that's really important is only fans is the elephant in the room right now.

And so the fact that they can arbitrarily deep platform creators, Even though you might be earning a hell of a living on it, there is existential risk for a lot of these creators.

It's typically their primary source of income.

So having an alternative stream and create an alternative fan base somewhere else is actually really healthy for a lot of these creators.

And so is it economic model that the users are paying in fiat or is it that they're paying in the token?

If you would ask me in 2021, before we even got started, we'd say, of course, yeah, they're paying in token.

And now it's the typical user is not someone who's crypto familiar.

We want them to have the feeling of they're swiping their credit card, behind that actually USDC, and that's the token used on the platform.

It's a very familiar experience, swipe the card, go immediately to payment.

So from a user standpoint, we don't want them to think about what they're paying in.

In the background, obviously that's something we care a lot about, but from a user standpoint, we want it to feel like they're just swiping their card.

And that you're taking from the top shot model where you're swiping your credit card, but then you have basically an in-game currency you can then use.

And that's very much the gaming model, like robots or anything like that.

You bring money on the platform and then you might earn it in a different format.

I think that's ideally a very familiar experience to a lot of these users.

And then just to push on the first place we started, why tokenize?

If you now have the dollars, why not just pay out dollars?

Yeah, I think the fundamental difference between an equity model and token model is incentive alignment.

So OnlyFans is the example of, well, what if you didn't tokenize it?

So we just think there's enough compelling advantages from what content could be on there, how it enables creators and then how the participants are better aligned in the value creation, which is more users come on and the more they interact with the token.

1 thing I alluded to earlier, what are we actually doing with this token is when we launch a token at super layer, if you think back to the Axie step in days, there was always a ton of inflation.

So do any activity, whether it creates value or not, economic value or not, and get rewarded with a token.

It was very hard to argue that every 10 steps was worth some amount of dollar value, even though the token was being given out.

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Gary Coover: Designing a Sustainable Token Economy