[00:00:00] Joe Benso: Welcome once again to the Casper Podcast, where we take a deep dive into blockchain technology and speak with those who are building the future of the decentralized web. I'm your host Joe Benso, and as usual, I'm joined by my colleague Matt Schaffnit from the Casper Association. Thanks again for joining me today, Matt.

[00:00:20] Matt Schaffnit: Great to be here, Joe.

[00:00:21] Joe Benso: On today's show, we're speaking with Hugo McDonaugh. He's the founder of GBM, an innovative Web3 auction mechanic and price discovery tool. Hugo, thanks so much for joining us on the Casper podcast, really innovative auction mechanics for NFTs, if I'm describing that correctly, happy to have you talk to us a little bit more about your experience going down the NFT and blockchain rabbit hole and what GBM is doing to innovate in this space. Welcome.

[00:00:50] Hugo McDonaugh: Well, it's a pleasure to be here, and thanks for having me on guys. So I've been in crypto now for about 10 years. I started, I think, like with most people the Bitcoin whitepaper appeared and I read it and was like “Wow, this aligns with a lot of my own values! This aligns a lot with what I believe is important and it's a pretty cool alternative to how current systems work.”

[00:01:09] Hugo McDonaugh: And so, in 2017, I guess, really me and my two other co-founders, two French guys, Guillaume and Edouard, we kind of just saw the NFT stuff bubbling up. And we were kind of just taken in by the whole idea and the concept of the technology. Basically, the view that in the future, every single asset that is not fungible and indeed fungible is going to have a token one day to represent its value, and its provenance just because it's better.

[00:01:33] Hugo McDonaugh: We want to be a part of that and build something in this space that's going to do that and help that future appear. The very first project we started back in 2018 was a single cryptograph, which was one-of-a-kind NFTs made by super famous people like Paris Hilton, Vitalik's first NFT. So, we created these things and we sold them via this auction system, GBM. And that's where for us, the idea of price discovery all started because we were like, “Okay, how do we value Vitalik's first-ever NFT?” for example.

[00:02:02] Joe Benso: Yeah. Take us through the mechanics there on the website. It says the GBM auction has a unique approach where everybody wins in this sustained kind of philanthropy concept. How is this possible? Maybe take us through why this is possible in Web3 and how this is a price discovery system for auctioning off artworks as you were doing with one of one projects.

[00:02:23] Hugo McDonaugh: Yeah, exactly. A lot of people in the early days went to Dutch auctions because it was easy to do on-chain, a simple thing to do on-chain. The issue here is that they can be pretty easily front-run. A miner can see something coming in before the person signing the transaction, and that's a problem. You leave a bunch of money on the table, you don't know if you're pricing it right really that well. There are a lot of problems with it and the same with English auctions as well.

[00:02:46] Hugo McDonaugh: We were basically sitting in a room one day, me, Guillaume, and Ed, and Gui was kind of like bouncing on one of those exercise balls and suddenly he was like, “Hang on a minute, we can pay people for bidding.” And we were just like, “Whoa, this isn't going to work.” This sounds like Ponzi, this sounds like robbing Peter to pay Paul, et cetera.

[00:03:02] Hugo McDonaugh: But actually, with a smart contract system and fully fulfilled bidding, when you send the digital currency into the contract, it works. Because there's no debt on the system. Everything's being calculated and given out in real-time. Money's actually being sent into the system. It's not just being promised and it's spitting out all the right numbers to everybody else in the auction system in real-time. So, the way it kind of works is, there are only two outcomes in a GBM Auctions. You either make money or you win the asset that's on auction. They're the only two things that can occur. And the money that you make is a variable rate of return depending on how much you outbid the previous person.

[00:03:36] Hugo McDonaugh: So, if you're the final bidder and you bid, say, $1,000, at the end of the auction, the $1,000 is in the contract, the seller takes their part, minus all of the incentives that have been paid out, and whatever the platform fees were, et cetera. The winner gets the asset. The amount that the seller gets depends on the bidding patterns what the maximum return is that you can get when you're outbid and what the minimum step increase is per new bid.

[00:04:01] Hugo McDonaugh:  But the main preset that we use is a 5% minimum increase for every new bid and a 10% maximum return when you get outbid. So, in general, if the bidding patterns are the most aggressive and the worst for the seller, the max the seller is going to lose out on is 20%. Normally they only end up giving away about 10% of their overall take at the end of the day.

[00:04:23] Hugo McDonaugh: But the brilliance of it, adding this incentive mechanic is that instead of the seller making 500 in an English auction, the seller sells it for a thousand and walks away with 800. So in general, we found that the auction system changes. Bottom line; selling prices by about 160% increases like bidding speed, bidding amounts, much much more.

[00:04:43] Hugo McDonaugh: So, like in an English auction you can imagine it's a very slow upwards curve with a tick up at the end in the last like 10 minutes. In a GBM Auction, it's straight up in the first 10 minutes and then it kind of plateaus and there's a little flick up at the end because the dominant game theory is if you think this thing's going to sell for 100, you want to get your bid in for 99 and you want to be the very first bidder to get that in because when the person comes in for 100 you're making 10% of 99 back.

[00:05:06] Joe Benso: In terms of regulations, is there any risk to regulatory considerations?

[00:05:12] Hugo McDonaugh: Very early on, back in 2018, when we decided we were going to create this system and use it for cryptograph, went and got the best legal opinion at the time in Europe on whether this could be constituted as betting, gaming, or gambling. The opinion came back very strongly, basically saying, no, it's none of those things. It's an innovative price discovery system because everybody knows what's happening. It's all fully transparent. You know what's on sale. Your motivation could be that you want to make a return or your motivation could be that you want to win the asset.

[00:05:43] Hugo McDonaugh: It's all in service to the price discovery because the way to think about it is. By bidding, you're helping to discover the value, and in return, you're being rewarded by the seller who wants to discover the value. So you're being paid in real time for a kind of price discovery service.

[00:05:58] Matt Schaffnit: Hugo, you're hitting on so many strong points. Price discovery is something that speaks deeply to me as someone who worked for a while in the small business lending markets as well, where price discovery is a huge problem. I know that GBM gives users advice and kind of how they're structuring the price mechanisms relative to game theory and all the mathematics behind the underpinnings of those mechanisms. Can you describe how you as a team take to that customer experience as we go from tech to product?

[00:06:33] Hugo McDonaugh: The process is really fairly simple. Here's the dApp, essentially, because it's now a dApp. If you want more complicated integration, here are the things you can do. If you want a very simple integration, you don't need any help.

[00:06:43] Hugo McDonaugh:  If you want a more complicated integration, here are the ways we can do it. And we'll get a chat group set up with your dev team and our dev team. It'll be interplay between them to get it done as quickly as possible and get it into the roadmap.

[00:06:54] Joe Benso: That's amazing. Where do you see things moving in the NFT space in general? You know, it really kicked off with this hype around the potential of what NFTs can do from a technological standpoint and just kind of got overshadowed by a lot of the price, of some of these transactions. So that obviously took the headlines and awareness was taken away from the disruptive power of NFTs and technology.

[00:07:22] Joe Benso: What do you think it's going to take? Because you guys are really taking this innovative approach where this adds a lot of potential for projects to expand also within like gaming ecosystems, right? So where do you think this fits in the next phase? If we do see an uptick in the NFT ecosystem around utility, what are you excited about moving forward?

[00:07:43] Hugo McDonaugh: Like with anything that's hugely democratizing, very accessible, there's potential to get rich quick, there's a lot of speculation, it's got Wild West vibes around it. Of course, it's going to become rampantly filled with snake oil. And the first cycle of NFTs, just like DeFi Summer back in 2017, 2018, it's the nature of a nascent new market that has a paradigm-shifting technology at the bottom of it. I just see it as kind of, you know, the natural cycles of new technology. I think we are definitely in the doldrums after the first hype cycle. And basically, I'm super looking forward to the long tail of this technology with enterprise take up.

[00:08:20] Hugo McDonaugh: You know, we spend a lot of time thinking about how you move NFTs between ecosystems because an NFT is really just a deed that represents. You know, it's a canvas that represents any kind of ownership really that you can program into it. That might have a whole bunch of random rights and different kinds of IP and things that we understand in the traditional world of value and ownership today that need to be moved between totally different universes, right?

[00:08:44] Hugo McDonaugh: Like this blockchain network that blockchain network can have totally different constructs, totally different universes. They don't talk to one another. If someone out there builds a bridge, wonderful. But if I want to migrate, that asset from one universe to the other and I want full functionality that requires a whole different kind of migration infrastructure that we've been doing some work on with how you can move the asset in a permissioned way where the publisher says, “Hey,” if Dapper Lab says, “This is the smart contract universe we created on Ethereum.  This is the one we've created on Casper, or this is the one we've created on Moonbeam on Polkadot or whatever.”  When you move your asset via this bridge and via this migration standard we've created, it's fully permissioned by the original publisher and the rights travel with it. It's much, much more important when you think 10 years from now and you've got people moving billion-dollar contracts on top of an NFT of which the provenance is crucial and it does need those permissioned ins and outs of the gateways between networks.

When that starts to come alive and we get better with bridging and we get better trustless decentralized bridges, then we're going to start seeing amazing things traded as NFTs, like everybody's mortgage, for example. Everyone has a different risk profile. They're all completely individual. They are essentially non-fungible instruments. They can have a much more accurate level of risk for each individual person. Why aren't people's mortgages, for example, traded as NFTs? I mean, they will be one day. That's what I think.

[00:10:03] Joe Benso: Hugo, you've laid out a nice vision of where this can eventually go with, multi-billion dollars worth of transactions taking place across multi-chain, making sure that there are standards there.

There's a lot of work being done around that. That's definitely an area that Casper is focused on as well. Also, bringing communities from other ecosystems, especially within the NFT space, being able to allow them to, participate in whatever benefits one chain may have over another and unlock certain benefits of another chain.

So, before we get to what's next and take us out here, maybe if you just have a couple of words on what the Accelerate Program was like. On Casper, fulfilling that kind of multi-chain execution. And then what's next for GBM?

[00:10:48] Hugo McDonaugh: GBM started as an EVM-based solidity system. And at the same time as starting to beginning to license that out, obviously all of these other networks like Casper and Polkadot and others are creating new ways of doing things that solve the blockchain dilemma in different ways and more innovative ways. We want to bring GBM to all of them and we want to make it as ubiquitous as possible. So, every project can benefit from this new way to discover value.

[00:11:19] Hugo McDonaugh: So we would go to a different network foundation and say, “Look, I think, we've got a really cool piece of technology here. We can bring it to your ecosystem. We can build it specifically for your ecosystem to be done at a native chain level, here's our contract and proxy connect to it and doing that can benefit all of the projects in your ecosystem.” What's interesting there, the first thing that was different with you guys, with a lot of others is we would go to different, network foundations, say, “Hey, We can dedicate resources to building it out for your specific chain at a native level, and we can have it as a module will be offered to the projects in your ecosystem.”

[00:11:54] Joe Benso: And indirectly your tool is adding value to ecosystem projects. Is there one specific area within NFTs moving forward that you're most excited about shorter term?

[00:12:04] Hugo McDonaugh: Yeah, I mean, obviously everyone uses the almost cliched phrase now, the utility, but that is what it is. I think a deepening in terms of IP rights what you actually own and what's represented by this digital deed is the next big step.

[00:12:16] Hugo McDonaugh: Then programmatically, what you do with that. So, my NFT being a right to display publicly this image that is digital is like where we started and we speculate on the price go up, you know, a year from now, I want this NFT to not just be that, but I want it to have rights that are enshrined, both in traditional law and let's say blockchain law, if you will, that says, “Okay, this is also a ticket to this artist's next exhibition, it's also an instrument that I could lend out or raise collateral on.”

It's all of these things in one. And the projects that spend time-solving those harder problems and really creating user experiences that are using the possibility of that deed are going to be the ones that end up doing really interesting things in the next kind of cycle and the ones that have staying power.

[00:13:09] Joe Benso: Well, Hugo, I think you guys are pushing the boundaries. You see the vision of where this space is going. We really appreciate you guys. You know, building tools on Casper for projects to use. Wish you all the best for what GBM is building and doing.

[00:13:24] Hugo McDonaugh: And likewise, thanks for your support, guys. The process was great and we look forward to getting GBM to as many projects in the Casper ecosystem as possible, basically.

[00:13:41] Joe Benso: So Matt, I'm super excited about builders, especially on Casper, who see the potential for NFTs. You know, innovative in a space where, yes, utility is kind of cliche now as what, what's going to be driving the market after the spare market. And GBM really has a unique solution.

[00:14:02] Matt Schaffnit: I agree with you, Joe. Look, as we continue to see the maturity of the space increase, GBM, in my view, is a canon of that. They have an innovative price discovery auction system. Fully containerized in a programmatic manner, which I find to be a very elegant solution.

[00:14:22] Joe Benso: Yeah, and some of the things that they're offering other creators, community builders, NFT projects.This is an approach where essentially everybody wins and you find pricing mechanisms based on game theory. And this is something that you can do, that's only possible in Web 3. It's only possible by using smart contracts and eventually smart financial contracts.

[00:14:52] Joe Benso: And if you are enjoying these conversations on the Casper Podcast, be sure to subscribe. You can also leave us a voice message for a chance to appear on a future episode. We always love to hear from the listeners. So until next time, keep building and we will see you on the next episode of the Casper Podcast.