While DeFi continues to thrive as a specialized sector of Ethereum, we’re starting to see signs that legacy players are beginning to experiment with the same tools that make blockchain technology so exciting.
This past week, we saw two examples of DeFi-like activity within the NBA:
- Spencer Dinwiddie’s tokenized bond
- Sacramento Kings jersey auctions
Both of these projects leverage the use of smart contracts for the issuance of tokenized assets, each represent claims over an underlying good. Thanks to web 3 wallets like Metamask, owners of either the tokenized bond or a non-fungible token representing Kings memorabilia can store their assets knowing they are the only one with access to those claims.
Let’s look at how each of these is unique.
Spencer Dinwiddie Bond
Brooklyn Nets player Spencer Dinwiddie recently shared his plans to sell tokens representing rights to his $35.4M NBA contract under a Reg D 506(c) offering. The tokenized bond – built on Ethereum and issued through Securitize – will sell for around $150,000 per token with a maximum of 90 participants.
Investors receive a 4.95% monthly return (with the full principal paid off at maturity) while Dinwiddie receives $13.5M of his 3-year contract up-front. The offering also includes benefits to token holders, like bringing them to All-Star Weekend in February.
The fact that Spencer was interested in tokenizing his NBA contract is certainly not breaking news. Upon the announcement of his intent to tokenize his earnings months back, Dinwiddie received serious pushback from the NBA for its original design to include bonuses and payouts depending on the outcome of his player option for the third year of the contract.
Token rights aside, what’s important to recognize here is that professional athletes are recognizing the benefit of leveraging immutable, distributed ledgers to provide access to a global pool of capital for out of the ordinary capital raises. Dinwiddie has been quite vocal about his interests in DeFi, and we can assume that pending the launch of a Reg A+ offering, his tokenized bond will likely trade on products such as Uniswap.
I can’t wait to have a Reg A offering as well. The hoops we have to jump through now Make the process cumbersome. NDAs, KYC/AML, Accredited investors, cross reference with other approved lists etc etc. but soon we will have it for ALL! I promise https://t.co/l4E1U36LdD
— Spencer Dinwiddie (@SDinwiddie_25) January 12, 2020
The question now becomes, how do we engage average investors without receiving pushback?
Enter the Kings
Despite having one of the poorer records in the NBA, the Sacramento Kings have continually explored how blockchain technology and cryptocurrency can play a role in the uniqueness of the organization. Outside of being the first team to accept Bitcoin as payment back in 2014, the Kings also launched a crypto-collectable partnership in October of 2019.
This week, we saw these concepts materialize even further, with the Kings launching live auctions for valuable memorabilia. The Ethereum-based system leverages non-fungible tokens in partnership with Consensys-backed Treum to issue a unique digital token that tracks each item from the court to the door.
The first auction, a game-worn Buddy Hield jersey, sold for over $1,000. The portal provides clear instructions on the NFTs function and purpose, along with helping users onboard by creating digital wallets for the winners of the auction.
While slightly different from Dinwiddie’s tokenized bond, the principal of NBA franchises embracing the use of Ethereum is a strong signal for the future potential of DeFi at large.
How is This DeFi?
When we think about DeFi, it’s important to think about access to global, permissionless financial vehicles that were once ridden with intermediaries. While some of these assets will need some help to get off the ground (i.e. Spencer’s compliance with legal and NBA opinions), the ultimate goal is to democratize access to new financial instruments.
In the case of the Kings auctions, NFT’s enable owners to tangibly prove that their jersey is the one worn by their favorite player, without any worry that the certificate would deteriorate or need to be kept closely guarded.
As we continue to embrace an entirely digital economy, protocols like Ethereum enable legacy systems to take advantage of entirely new waves of incentives. When we pair in projects like Maker, we can envision a world in which someone posts their Spencer Dinwiddie bond as collateral to issue Dai.
Without getting too far ahead, let’s just take a moment to recognize that professional sports organizations are starting to see the value in this technology, and this is simply just the tip of the iceberg for how DeFi can further expand these opportunities.
Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.