Arguably, one of the largest talking points surrounding NFTs revolves around tokens’ Dubai skyscraper-level Ethereum prices and the utter lack of access to ownership thereto. How does an entry-to-mid-level collector who desires to own an esteemed one-of-one edition—but avoid shelling out an exorbitant chunk of crypto—do this? For Andy Chorlian, the answer is nestled in a fractionalized-ownership model not unlike a shareholder of a corporation (except we’re talking DeFi here and not Fortune 500). Chorlian’s aptly named Fractional protocol enables price discovery, liquidity, and curator fees. Owners of such a fractionalized token nurture a concomitant, community-first ethos for which crypto has become so renowned.
Indeed, from Chorlian’s previous roles in MakerDAO, the DeFi summer, and his personal relationship with NBA Top Shot, he recognizes the inherent emotional connection that collectors espouse and which drive so many to buy certain tokens. That sentimental factor is baked into Fractional’s configuration. ZORA’s co-founder, Jacob Horne, connected with Chorlian on his “aha” moment, the subtle nuances between whole NFTs and fractionalized ones, and the challenges of building upon permissionless systems.
Jacob Horne (ZORA): You've had a long history in crypto now, Fractional isn't the first time you've been building. You've started in DeFi, had a really interesting time in the early phases of the NFT boom with Top Shot, and now you're at Fractional. Do you want to tell us a little bit about your background? How'd you get into crypto, what that journey's been like, and how'd you end up starting Fractional?
Andy Chorlian: I first got into crypto in early 2017. I was broke at the time and just wanted to do some offshore sports gambling [but] didn't want to give them my credit card. So I bought some Bitcoin and downloaded Coinbase. After I downloaded it, I was like, ‘Oh, there's some other things on here.’ I started reading about Ethereum and was just under a year out of school at that point. I was pretty instantly swept up in it; a few months later I was looking for a new job because I was living in Philly and my girlfriend, Allie, was in New York. I was looking for startup jobs that were open to crypto, but also willing to hire someone who had no idea what they were doing. I found this place that was a Fintech company, but they were the first one that was letting people also buy Bitcoin with their robo-advisor stuff, which is a cool idea. So I got to basically immediately jump into being a full-time solidity dev; they paid me to learn for a year, which was really lucky.
Then right at the start of 2019, I joined a MakerDAO and was there for two years— most of my time I spent writing tests and learned formal verification, which was really useful, and then the second half was a lot of learning how to sustainably build on top of Multi-Collateral Dai, which is also super valuable. So during DeFi summer last year, I was starting to get a little bored at Maker, so I got really into Top Shot at the time—that was my first experience. I think I was aware of NFT stuff marginally prior; I remember following the CryptoKitties craziness, but I wasn't actively participating a ton. I discounted it because I hadn't had the, ‘aha’ moment. Top Shot for me was kind of that gateway drug because I knew that it was a good monetary bit, but at the same time, I just was really really enjoying my time, having fun, and spending hours researching. That clicked something in my brain that triggered a lot of other understandings of why this is important. So that was where I started really thinking about NFTs and taking them more seriously. Then I spent some time after Maker, dabbling in other DeFi stuff, and then started Fractional full-time in February of this year.
Andy Chorlian. Photography Wall Street Journal
JH: Tell me more about that "aha" moment.
AC: I think one of the biggest things is that I wasn't incredibly early to Top Shot. I was very early, but there were people who were significantly earlier than me and were mostly crypto people, not basketball people. All of the most valuable legendary packs and stuff were not on the site when they came out, so I had to buy them all in the secondary market. That was the real way you made just an insane amount of money with no risk: you just bought as many of those packs as you could. They were $230 at the time and now the cheapest moments from those packs are $10,000, $20,000.
So when I joined the site, one of the biggest collections was a particular set called the Holo MMXX. It sounds ridiculous now when you look at the prices on the site, but at the time, the cheapest ones were maybe $200 and the most expensive were $2000 or something. I looked at all the people who had a lot of these and none of them were actual basketball fans; I was like, ‘Fuck you guys, I'm going to be the NBA fan who has the most Holo moments because I actually like basketball and I want to have this stuff.’ So I set out to buy that entire collection.
I was consciously making decisions that were not the most EV decision, because I just wanted it. That really triggered something in my head where I was like, ‘If I wanted to make the most money possible, I would just buy every single LeBron James moment on the site,’ but that's not what I'm interested in—I'm having fun buying the players that I like. And I was like, ‘Oh, that totally translates to everything else in the world.’ It's funny because it's something that had always been a part of how I thought about things; I was collecting sneakers, buying and flipping Supreme, Kith, Palace and all this stuff. So it was a part of my life, just that was my first experience where that same emotion was part of the digital world.
NBA Top Shot
JH: Fascinating. So it was the catalyst that I think a lot of people go through with NFT: you understand there's a crypto or explicitly financial aspect to it, but now there is this cultural or emotional connection which is different for everyone. That isn't necessarily the case when you're buying or selling Eth—there's a very uniform price and it's like, ‘Okay, what's going on from here?’
AC: Something I've talked about a lot is that I feel a level of an emotional connection to Ethereum because it's changed my life, but whenever I buy and sell Ethereum, I don't have an emotional connection to the Ethereum that I've bought and sold. There are NFTs that I have very serious emotional connections to now that are worth more to me than their fair market value because of that.
JH: Right. So fast forward to today, tell me about Fractional. What are you doing? Start from the top.
AC: Yeah. For people who aren’t aware, Fractional is an NFT fractionalization platform. The idea is, say you come with a really valuable NFT: an Alien CryptoPunk is always the easy example. They're incredibly inaccessible to most of the world, but I think a lot of people would love to own even 0.1% of an Alien CryptoPunk. So we're trying to build a platform that lets people fractionalize their NFTs and break them down into smaller bits that other people can collect and have communal ownership over. We are trying to focus on making it feel good and rewarding to own those things, because I think there's a certain emotional gap between owning the entire thing and owning 10% of the thing, and we're working really hard to try and bridge that gap in whatever ways we can.
What you gain with the fractionalization is this community of people who all own the same thing, and there's cultural buy-in—that side of what makes owning NFTs exciting and valuable has been proven with profile picture projects.
JH: What do you think the biggest difference between owning a whole NFT and a fraction of an NFT is? Because it’s such a subtle thing, it's all virtual. Talk through the nuance of what the differences are there.
AC: What's interesting about it is I don't think one is necessarily better than the other—I think that one is just more evolved than the other. When you have a full NFT that you own, there's this level of exclusivity and it's badass, and that's cool. But on the flip side, fractionalizing is the opposite purpose of that. What you gain with the fractionalization is this community of people who all own the same thing, and there's cultural buy-in—that side of what makes owning NFTs exciting and valuable has been proven with profile picture projects.
JH: Do you think that, in the extreme case, community ownership in a particular NFT could actually make the notoriety [rather] than a one-of-one? I guess what I'm trying to get at is, one of the superpowers in crypto is ownership turns people into advocates and believers. So if you take that one-of-one ‘X’ copy and you go from one person who is the only owner of it to a hundred thousand people that can now do it, how do you think that impacts the reach for it? It might actually be in an artist's favor to sell to a community versus to an individual collector maybe.
AC: Community is really additive, it's a positive sum thing for these NFTs where I think we haven't been able to experiment in it too much yet. There's a couple nuances to it with a particular collectible, which is what we've mainly seen as the hot things in NFTs. It's significantly harder for community to be additive when you just have fractional ownership because it's so tightly coupled and tied to the floor price. So if you have a floor CryptoPunk that's fractionalized on Fractional, unless someone, or some group, really turns it into friends with benefits for this floor Punk, then I don't think it really matters how much people post pictures of that Punk— people are still going to be so tied to the market for CryptoPunks.
I think where it gets really exciting is when you have actual one-of-one creative work. How do people decide which Jackson Pollock is the best? I have no idea, but someone decided that this one was the rarest. That's where I think this community ownership and the ability to meme things into existence and create cultural mindshare around a particular NFT gets a lot more powerful: it's not so tightly coupled to a market of what people have [or] predefined rarity, it's more, what does the world value? I would love to see in a couple years what it looks like for the most coveted fractionalized ‘X’ copy versus the most coveted individual one. I bet they're functioning in totally different ways; where the most coveted individual one is maybe in a museum somewhere, and the most coveted fractionalized one is a great meme on Reddit or whatever the social media is in that time.
JH: Probably the biggest NFT to be fractionalized on Fractional is the Doge meme. It’s kind of a brain bender, because in a lot of ways, it feels like a more elegant model to the original Dogecoin currency—both are kind of based on the exact same meme, but the $DOG Fractional token is explicitly backed in ownership of the original meme minted by the hands of Atsuko Sato, versus the Dogecoin cryptocurrency, which is kind of this amorphous thing that has become a huge cultural phenomenon. Talk about the differences between $DOG and DOGE and how you think that's going to play out over the next two to five years.
AC: I'm really interested to see how online communal ownership of memes evolves over time. I almost view Dogecoin and the $DOG NFT at this point as two different memes, and Dogecoin is a meme on Bitcoin. But I don't think that Dogecoin people really give a shit about the Doge meme that much—it's just the funny coin that people use to transact online. I think that the Doge part of it is how it started, but now it's something different than that. Whereas, potentially, you could see the Doge NFT coming into its own separate niche where it's not about the coin, and transacting with a coin, and Tesla accepting the DOGE meme coin, but it's about the actual meme itself and bringing awareness and recognition to that meme, and people having cultural buy-in of actually being able to own it.
I almost see them diverging a little bit where one is the tokenized currency of memes and the other is the currency of this actual Doge meme. To me, Dogecoin feels like it's transcended the Doge meme and is different. I was having a conversation with someone yesterday about this, just saying how it just feels like people are still undervaluing just how important memes are—they're just the currency of the internet.
JH: They're almost the atomic unit of culture in a lot of ways. I can't remember who said it, but it's like if a picture's worth a thousand words, then a meme is worth 10,000. Shifting gears a little bit. Talk about building: what are the biggest differences between building in DeFi and the experiences you had at MakerDAO and then building for NFTs?
AC: I think the biggest difference is the users and what they want, and that's something that we've been learning a lot at Fractional. The end users who we are interacting with on a daily basis don't really understand how to use Uniswap or how to make a liquidity pool. They're not super interested in maximizing the APY of their tokens—that's just not the driving factor for them. Generally, NFT smart contract development is significantly more basic than DeFi. Nothing I ever write for Fractional will look like the MCD smart contracts—it's a totally different beast.
We're not trying to reinvent the financial system. Over time, I think NFTs have enough of a gravitational pull around them that DeFi's going to come and meet NFTs where they are. And what that looks like, we'll see. Most users who I get DMs from are like, ‘I could never own an X copy, so I’m excited that I have 2% of this X copy.’ That's something that I didn't really expect, because I kind of have that multiple mindset where I am a degen yield farmer, but I also have NFTs that I like. That's super different from DeFi where I'm just going to use whatever lending protocol is the most plus EV move at any given time, I don't really care which one it is, and I don't really have super major alliances to any one of them.
JH: I guess a core principle of the way you've been building out the Fractional protocol is permissionless-ness. Do you want to talk about why that's important, what that means, and the challenges and opportunities that come from that?
AC: I think we share a lot of ethos here in that, but I think that building non-upgradable, fully permissionless, decentralized smart contracts is just really, really important, especially with something as important to someone as an NFT that they buy. If we're accepting that NFTs are more about their emotional significance than anything else, I don't want to put something that I feel emotionally tied to in a smart contract that I could get rug-pulled on because it's upgradeable or not trustless in some way. Making sure we're building systems that are totally resilient to any type of negative environment means having to test them and make sure that they're secure, because when you deploy them, you can't fix them afterwards. But once you get to that state, your NFT is going to be there forever, no matter, and I think that's just incredibly valuable. You're always going to own it as long as you have the keys and nothing else has control over that—it would be weird to me to build a system that didn't follow that same ethos.
JH: What do you think of the challenges that come with building permissionless systems?
AC: Migrating code is next to impossible, so we're working on upgrading our Fractional stuff. People are like, ‘Oh, these upgrades sound really sick. How do I make my current fractions do that?’ And I go, ‘You can't guys, sorry, we can try to do a buyout and then refractionalize it.’ So there's a lot of challenges trying to figure out how you could do that in a way that's easy and not incredibly painful. But what it also allows for is a ton of optionality: I know people who didn't want to fractionalize on Fractional until they saw a level of total value locked and time in the market so that they felt safe and secure. They probably don't want to use V2 yet, because whenever that launches they are going to want that same waiting time. So maybe if they are time sensitive, they just want to launch on V1 and that's awesome. So it's a trade-off, but there's also real value in giving people security that, once this has been live for long enough and has enough money in it, it’s probably safe and something that they would feel comfortable using.
JH: Right. And for the developer side too, it means that you can create this ecosystem of applications, then built on top of the Fractional protocol, because they have the confidence you don't want to rug pull them as a developer, or you can't take away their API keys by design. Last question: what do you want to see people build and experiment on top of Fractional?
AC: There's the stuff people have been building out there like PartyBid and what I'm noticing is a ton of top-of-the-funnel, how-do-we-get-a-ton-of-people-to-collectively-own-something [mentality]. That's super exciting, but what about the other side where you want to build community around these things? So there's Collab.Land and other stuff like that, but I'm very excited to see how we can build more on that side where, once users own these things, how do we appropriately display them? What does that look like? How do these people talk to each other and chat about what they think a reserve price should be?
I think a lot of the value in these communities is shitposting with your friends. How does it make it feel like you're just shitposting with your friends when you all own the same NFT? That kind of stuff is still super underexplored and something that we at Fractional are going to explore, but also see how the greater real world explores those things.