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The Peninsula Hotel in Beverly Hills has long been a luxurious hot spot for Hollywood machers, who hash out movie deals over single-malt whiskeys. On a chilly-for-L.A. January afternoon (65 degrees), most of the people in the hotel’s rooftop café are bundled up in puffy jackets under heat lamps. But not Roham Gharegozlou, cofounder and CEO of Dapper Labs—the company behind the NFT phenomena CryptoKitties and NBA Top Shot—who’s in a light pastel hoodie and jeans. The Iranian-born Vancouver resident is here—amid a COVID surge—for the same reason as everyone else: He’s scouting for talent, anyone who’s interested in creating new and exciting blockchain applications for the masses.
“In Silicon Valley, everyone’s working for these large Web 2.0 platforms [e.g., Facebook]; whereas here, nobody’s really satisfied with how things are. And so the vision of a new way to do things is inspiring,” he says, with a grin. “We’re putting power back in the hands of creators. That’s the mission, and that’s why I’m here.”
Creators are drawn to Dapper because of its reputation for breaking down the complicated, intimidating world of Web3 (the loosely defined effort to build the next phase of the internet, grounded in principles of decentralization and ownership). The company, which makes and markets nonfungible tokens, created NBA Top Shot—virtual trading cards featuring basketball video highlights—and helped turn 2021 into the year of the NFT. Dapper last year generated $100 million in revenue from NBA Top Shot, which introduced the idea of collecting scarce digital assets to millions of people.
The company’s early success is the product of Gharegozlou’s vision and patient approach in an otherwise frenetic sector. Conversations with the NBA started in 2018 and were finalized a year later. Top Shot didn’t open up to the public until October 2020. During all that time, Dapper was building its Flow blockchain to handle transactions speedily and its own crypto wallet to facilitate credit card payments, which had never been done before. When Top Shot finally launched, it made NFTs feel accessible to even the noncrypto crowd. “Two years ago, you felt you needed a PhD in physics to figure out how to create a wallet and purchase an NFT,” says Chris Jacquemin, head of digital strategy at talent agency WME. “Dapper successfully crossed NFTs into the lexicon.”
In what has now become crypto lore, when CryptoKitties launched in 2017—by Axiom Zen, Gharegozlou’s pre-Dapper crypto company—it crashed Ethereum. As it turned out, a game that allowed users to buy, trade, and “breed” NFT cats, couldn’t scale that quickly without clogging the platform. Worse, even though the game’s popularity drove revenue—it made $40 million its first year, with one cat selling for $170,000—the number of people actually engaging, as opposed to just checking it out, was minuscule, due to the intricacies of cryptocurrency. “We were seeing close to a 2% conversion rate from someone clicking on “I want this cat” to being able to buy the cat,” says Mik Naayem, a Dapper cofounder and its chief business officer, who looks like a soccer player with his athletic build and wild, dark curls pulled back in a headband. Naayem met Gharegozlou at a bilingual high school in Paris before heading off to Columbia University (Gharegozlou went to Stanford).
Based on CryptoKitties, Gharegozlou and company could easily have cashed out in an initial coin offering (ICO), which Naayem says crossed everyone’s mind. Instead, in 2018, Dapper Labs was formed with the mission to build not just NFT games and apps, but also blockchain tools. All of it would be built around the premise of being easier to use than existing apps and platforms. Leading the tech behind the scenes was Dapper’s CTO Dieter Shirley, a chatty, goateed engineer, who first coined the term “nonfungible” token and wrote the ERC-721 protocol, which became the standard contract for NFTs. That effectively made Dapper the birthplace of the NFT movement.
There was nothing intuitive about the timing of NBA Top Shot. Back in 2018, crypto fell into what came to be known as its “winter,” as ICO scams and the steep decline in the price of Bitcoin diminished its mainstream appeal. “Roham gave a TED talk about NFTs four years ago when the concept sounded crazy to everyone else,” says Chris Dixon, a partner at Andreessen Horowitz, which has backed Dapper since 2018. “I think people sometimes discount the vision that Roham has had,” adds longtime digital innovator Trevor McFedries, who created the tokenized community Friends With Benefits in 2020 and sold his other startup, Brud, to Dapper in 2021. “His idea is that most things in life are nonfungible,” says McFedries. “Roham saw that and stayed the course, through winter and capital running away, through people calling this thing and saying it was dead.”
Negotiations with the NBA, meanwhile, dragged on for a year as both sides tried to marry the—in many ways, incongruous—idea of taking one of the world’s most iconic, and protected, brands and opening it up to a world in which any person on the street could effectively own a piece of it. The slow pace was also a result of Dapper’s deliberateness with products. It has never rushed to market for the sake of cashing in on a trend. Great focus was put on market research and gathering data—something that persists to this day.
What brought the two sides together was their shared belief in making Top Shot easy to use. “Our main concern was really ensuring that the product was accessible,” says Adrienne O’Keefe, the NBA’s VP of global partnerships and media. To that end, the words “blockchain” and “NFT” did not initially appear on any onboarding steps. And Dapper debuted the Dapper Wallet, which allows people to buy NFTs with their credit cards.
Gharegozlou calls the credit-card decision “table stakes.” The real heart of Top Shot is the experience of opening packs of video cards and delighting in their contents. Dapper obsessed over refining the experience. During the process of purchasing an NBA Top Shot video pack, the company created an exciting, even joyful, feeling that closely mirrors the fun of ripping open a pack of trading cards (with “Blockchain” and “NFT” nowhere in sight). Dapper also learned from a generation of digital natives, such as YouTube and TikTok influencers, who wow fans by unboxing “hauls” of makeup or toys. “We looked at where people were spending their time,” Gharegozlou says. They noted the popularity of watching users open packs of extra players and soccer kits on games like FIFA Ultimate Team, as well as how people were gravitating to digital communities where they had skin in the game, such as stock trading.
By the time Top Shot launched in closed beta, in May 2020, the world had been overturned by the pandemic, and the NBA had suspended its season. Gharegozlou calls the period his “darkest moment.” What he wasn’t considering was the suddenly stuck-at-home audience looking for things to do, nor how quickly things would evolve. By October, when it opened up the beta to everyone, the league was playing in the bubble in Orlando in prep for its new season, which kicked off in December. The combination of at-home audiences and NBA excitement led to an explosion of interest in Top Shot. By January 2021, sign-ups jumped from 4,000 to 400,000, sending Dapper into frenzied-scale mode. “We had one person working on customer support, one person working on doing identity verification,” says Gharegozlou. “We had to 100x the team.”
NFT fever was officially underway. In March, art by Beeple went for $69 million in a Christie’s auction. In August, a LeBron James Moment went for $387,600. Things tapered off, though, toward the end of the year as newer products centered around avatars (Bored Ape Yacht Club) and games (Axie Infinity) entered the more saturated market. Sales of Top Shot Moments on secondary markets soared to about $200 million a month in February and March 2021, before settling down to between $20 million and $40 million a month by the end of the year, according to Mason Nystrom, an analyst for the crypto research firm Messari. “That’s by no means nothing, considering they take a royalty,” he says. (Dapper takes a 5% fee from secondary sales, which it splits with the NBA and the Players Association.)
Unlike other trendy NFT projects, Dapper’s partnership with a perennially loved brand like the NBA makes Top Shot an evergreen prospect. As the 2021–2022 NBA season gathered steam, secondary sales rose 72% in the first three weeks of January, according to the analyst CryptoSlam, fueled in part by a new ad campaign featuring Kevin Durant. Later this year, a mobile app will launch, and Dapper and the NBA are working on adding more game-like and fantasy-sports elements. “We’re going to start getting a lot more active about promoting Top Shot as a kind of web experience,” Gharegozlou says. “Through the players and through influencers, through paid media, through doing more television stuff and just, in general, testing. We want to go mainstream with a lot of the product that’s been currently built before there’s even a mobile app.”
Top Shot’s success has led to deals with other A-list sports entertainment partners, such as the NFL, La Liga, and the UFC. Last fall, La Liga’s wildly popular Real Madrid soccer club released an enhanced ticket experience on the Flow blockchain, and UFC Strike, a Top Shot-like platform, launched in January. These are just some of the experiences Dapper wants to enable.
In the wake of the CryptoKitties crash, Dapper decided to build its own blockchain, which would solve the problems it had encountered on Ethereum. Initially dubbed “Bamboo,” Gharegozlou renamed the platform Flow while meditating. “It’s that concept of being in a flow state—connecting with creators in a different way,” he says.
The primary difference between Flow and Ethereum—the first-mover in the space, where most of the big crypto companies, like OpenSea, are built—is that Flow has lower transaction costs and can handle more of those transactions: 1,000 TPS (transactions per second) compared to Ethereum’s 13 to 15. In other words, Flow can handle a project that goes viral. It also has a simpler, more developer-friendly programming language, and can support non-cryptocurrency exchanges. Though as a newer platform, Flow has fewer established resources and tools for developers.
In addition to the sports-related collectibles experiences operating on Flow, Gharegozlou also wants to host self-contained worlds—metaverses, such as Matrix World, which already lives on Flow, and eventually games, such as Fortnite and Roblox, though neither of these popular games has crossed over to the blockchain, nor do they have deals with Dapper. Additionally, he’d like Dapper to be the home for decentralized autonomous organizations (DAOs), which are community groups that allow members to contribute their expertise and vote on their collective actions.
Last October, Dapper, flush with $250 million in fresh funding, acquired the startup Brud—best known for the AI-generated social media influencer Lil Miquela—from McFedries, and Gharegozlou put him in charge of a new division of the company, called Dapper Collectives, devoted to popularizing DAOs. In Web3, DAOs primarily operate as investment clubs. (The best-known DAO tried to buy a copy of the U.S. Constitution last November.) But Gharegozlou has a more expansive vision. He sees them as “a group of people who don’t know each other, who are able to make their views heard, and direct the flow of anything: money, storytelling, in-game actions.”
McFedries’s first initiative is to create a decentralized version of what Brud’s creative team did with Lil Miquela; on Flow, Lil Miquela can now be guided by her fans. “Imagine you could walk into Disney and make your voice heard,” he says. “So if you say, ‘I’m actually excellent at marketing. I want to enter a marketing meeting and say, You know what? You should be doing X, Y, and Z.’ With a DAO, you can effectively do that.”
Gharegozlou also says that Dapper is experimenting with DAOs on Top Shot, where a group of users could vote on things they want to buy together, and that “a bunch of our ecosystem projects are already playing around with different ideas,” he says. “Maybe it’ll be our first thing that’s going to go viral—like CryptoKitties. Maybe it’ll take a few swings.”
All of these efforts are not just about growing Flow, but the overall blockchain market. As Gharegozlou’s fellow cofounder Naayem says, Top Shot may not be “a full, complete NFT decentralization . . . but it allows people to go further and further down that rabbit hole.” He continues: “We may not always be doing the most crypto-native stuff, but what we’re trying to do is deliver value to consumers in a way where they can understand it, feel it, and get more of a taste for it.”
When I ask Gharegozlou about how big Dapper can get, he says, “If you think about it, $25 billion of NFTs have been traded in the last few months alone,” calmly taking a sip of espresso. “It’s bigger than trading cards. It’s bigger than FIFA Ultimate Team. It’s bigger than sneakers, even. The secondary market for sneakers is about $20 billion. And the products are starting to catch up and evolve. . . . Ultimately, I think the addressable market is everyone who has a phone.”
That would put 3 billion people on Dapper’s blockchain. Does he see that happening anytime soon?
Gharegozlou smiles. “Probably not this year,” he says. “But we’ll make a dent.”
A version of this story appeared in the March/April 2022 print issue of Fast Company.