From CryptoKitties to Flow: How Dapper Labs Became the Most Influential NFT Developer

Roham Gharegozlou/Co-founder of Dapper Labs
In the 2022 World's Most Innovative Companies published by Fast Company, NFT developer Dapper Labs was the only crypto project to make the list, ranking first among the most innovative gaming companies. At the same time, Fast Company published a deep interview article analyzing the company's development history and vision. Below is the translation by Chain Catcher:
For a long time, the Peninsula Hotel in Beverly Hills has been a luxurious hotspot for Hollywood's new elite, who finalize movie deals over single malt whiskey. On a cold January afternoon in Los Angeles, most people at the hotel rooftop café were bundled up in puffy jackets under the heat lamps. But Roham Gharegozlou was not; the co-founder and CEO of Dapper Labs (the company behind CryptoKitties and NBA Top Shot) wore a light-colored hoodie and jeans. The Iranian-born Vancouver resident was here amid a COVID surge for the same reason as everyone else: he was looking for talent, anyone interested in creating new and exciting blockchain applications for the masses.
"In Silicon Valley, everyone is working for these big Web 2.0 platforms (like Facebook). And here, no one is really satisfied with the status quo. So, the vision of a new way of doing things is inspiring," he said with a smile. "We are giving power back to creators. That’s the mission, that’s why I’m here."
Creators are drawn to Dapper because it is known for breaking down the complex and intimidating world of Web3 (a broad definition for the next phase of the internet built on decentralization and ownership principles). The company that manufactures and sells NFTs created NBA Top Shot—virtual trading cards featuring basketball video highlights—and helped turn 2021 into the year of NFTs. Dapper earned $100 million from NBA Top Shot last year, introducing the idea of collecting scarce digital assets to millions.
The company's early success is a product of Gharegozlou's visionary and patient approach in an otherwise frenzied industry. Conversations with the NBA began in 2018 and were finalized a year later. Top Shot didn’t open to the public until October 2020. During that time, Dapper was building its Flow blockchain to process transactions quickly and creating its own crypto wallet to facilitate credit card payments, something that had never been done before. When Top Shot finally launched, even non-crypto enthusiasts could use NFTs. "Two years ago, you felt like you needed a PhD in physics to figure out how to create a wallet and buy an NFT," said Chris Jacquemin, head of digital strategy at talent agency WME, "Dapper successfully brought NFTs into the dictionary."
In what has now become crypto common knowledge, when CryptoKitties was launched in 2017 by Gharegozlou's former Dapper crypto company Axiom Zen, it caused the Ethereum network to crash. It turned out that a game allowing users to buy, trade, and "breed" NFT cats could not scale quickly without congesting the platform. Worse still, while the game's popularity drove revenue—earning $40 million in its first year, with a cat selling for $170,000—the actual number of participants was negligible due to the complexities of cryptocurrency. "We saw a conversion rate of nearly 2% from clicking 'I want this cat' to being able to buy that cat," said Mik Naayem, co-founder and chief business officer of Dapper.
Based on CryptoKitties, Gharegozlou and his company could have easily cashed out through an initial coin offering (ICO), which Naayem said exceeded everyone's expectations. Instead, in 2018, Dapper Labs was founded with a mission not only to build NFT games and applications but also to create blockchain tools. All of this would be built on the premise of being easier to use than existing applications and platforms. Leading the behind-the-scenes technology is Dapper's CTO Dieter Shirley, a talkative engineer with a goatee, who first coined the term "non-fungible" token and wrote the ERC-721 protocol, which became the standard contract for NFTs. This effectively made Dapper the birthplace of the NFT movement.
The timing of NBA Top Shot was not intuitive. As early as 2018, cryptocurrency entered a so-called "winter" as ICO scams and a sharp drop in Bitcoin prices undermined its mainstream appeal. "Four years ago, Roham gave a TED talk about NFTs when the concept seemed crazy to others," said a16z partner Chris Dixon. The firm has supported Dapper since 2018. "I think people sometimes underestimate the vision Roham has,"
Longtime digital innovator Trevor McFedries 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 non-fungible," McFedries said, "Roham saw this and stuck with it through the winter and capital flight."
Meanwhile, negotiations with the NBA dragged on for a year as both sides tried to find ways to marry one of the world's most iconic and protected brands with the NBA, opening it up to a part that anyone on the street could effectively own, but there were many inconsistencies. This slow pace was also due to Dapper's thoughtful approach to the product. It never rushed to market to profit from a trend. Market research and data collection have always been a focus.
What brought both parties together was their shared belief in making Top Shot easy to use. "Our main concern was ensuring the product's accessibility," said Adrienne O'Keefe, NBA's vice president of global partnerships and media. To that end, the terms "blockchain" and "NFT" initially did not appear in any onboarding steps. Dapper launched the Dapper wallet, allowing people to purchase NFTs with credit cards.
Gharegozlou referred to the credit card decision as a "bet." The real core of Top Shot is the experience of opening video card packs and enjoying their content. Dapper is obsessed with improving that experience. In the process of purchasing NBA Top Shot video packs, the company created an exciting, even joyful feeling, very similar to the fun of tearing open a pack of trading cards (without seeing "blockchain" and "NFT"). Dapper also learned from digital natives of a generation, such as YouTube and TikTok influencers, who wow their fans by unboxing cosmetics or toys. "We studied where people spend their time," Gharegozlou said. They noticed the popularity of watching users open extra players and soccer gear packs in games like FIFA Ultimate Team.
By May 2020, when Top Shot's closed beta was released, the world had been upended by the COVID pandemic, and the NBA had paused its season. Gharegozlou referred to this period as his "darkest moment." By October, when it opened to everyone in beta, the league was preparing for a new season starting in December. The combination of home audiences and NBA excitement led to a surge in interest in Top Shot. By January 2021, registrations skyrocketed from 4,000 to 400,000, putting Dapper into a frenzy of scale. "We had one person in charge of customer support and one person in charge of verification," Gharegozlou said, "We had to scale the team by 100 times."
The NFT craze officially began. In March, Beeple's artwork sold for $69 million at a Christie's auction. In August, a LeBron James Moment sold for $387,600. However, as new products centered around virtual avatars (Bored Ape Yacht Club) and games (Axie Infinity) entered a more saturated market, things began to level off.
According to Messari analyst Mason Nystrom, sales of Top Shot Moments on the secondary market soared to about $200 million per month in February and March 2021, before dropping to between $20 million and $40 million per month by the end of the year. "Given that they charge royalties, that’s nothing," he said. (Dapper takes a 5% cut from secondary sales, shared with the NBA and the players' association.)
Unlike other popular NFT projects, Dapper's collaboration with beloved brands like the NBA gives Top Shot the prospect of being evergreen. According to data from analyst CryptoSlam, as the excitement of the 2021-2022 NBA season ramped up, secondary NFT sales grew by 72% in the first three weeks of January, partly due to Kevin Durant's new advertising campaign. Later this year, a mobile app will be launched, and Dapper and the NBA are working to add more game-like and fantasy sports elements. "We will start to promote Top Shot more aggressively as a network experience," Gharegozlou said. "Through players and influencers, through paid media, by doing more TV shows. We want to have developed a lot of products and become mainstream before the mobile app comes out."
The success of Top Shot has led to deals with other top sports entertainment partners, such as the NFL, La Liga, and UFC. Last fall, the popular La Liga club Real Madrid launched an enhanced ticketing experience on the Flow blockchain, and a Top Shot-like platform called UFC Strike launched in January. These are just some of the experiences Dapper aims to achieve.
After the collapse of CryptoKitties, Dapper decided to build its own blockchain to address the issues it encountered on Ethereum. Gharegozlou initially called it "Bamboo" before renaming the platform Flow during meditation. "It’s a concept of being in flow—connecting with creators in different ways," he said.
The main difference between Flow and Ethereum is that Flow has lower transaction costs and can handle more transactions: 1,000 TPS, compared to Ethereum's 13 to 15. In other words, Flow can handle viral projects. It also has a simpler, more developer-friendly programming language and can support non-crypto transactions. Although Flow, as a newer platform, offers fewer established resources and tools for developers.
In addition to sports-related collectible experiences running on Flow, Gharegozlou envisions an independent world—metaverses like Matrix World that already exist on Flow, and ultimate games like Fortnite and Roblox, even though these popular games have not yet crossed into blockchain or made deals with Dapper. Additionally, he hopes Dapper will be home to decentralized autonomous organizations (DAOs), community groups that allow members to contribute their expertise and vote on collective actions.
Last October, Dapper raised $250 million in new funding and acquired the startup Brud from McFedries, known for the AI-generated social media influencer Lil Miquela. Gharegozlou put him in charge of a new department called Dapper Collectives, dedicated to popularizing DAOs. In Web3, DAOs primarily operate as investment clubs. (The most well-known DAO attempted to purchase a copy of the U.S. Constitution last November.) But Gharegozlou's vision is broader. He sees them as "a group of strangers who can express their opinions and guide the flow of anything: money, storytelling, actions in games."
McFedries' first initiative is to create a decentralized version of the creative team at Brud for Lil Miquela; on Flow, Lil Miquela can now be guided by her fans. "Imagine walking into Disney and having your voice heard," he said. "So, if you say, 'I’m actually good at marketing. I want to join the marketing meeting and say, you know what? You should do X, Y, and Z.' With a DAO, you can effectively do that."
Gharegozlou also mentioned that Dapper is experimenting with DAOs on Top Shot, where a group of users can vote on what they want to buy together, and "many of our ecosystem projects are already trying different ideas," he said. "Maybe this will be our first thing that goes viral like CryptoKitties."
All these efforts are not just for the growth of Flow but for the entire blockchain market. As Gharegozlou's co-founder Naayem said, Top Shot may not be "a complete, fully decentralized NFT," but it can take people further down that rabbit hole. He continued, "We may not always be doing the most crypto-native things, but what we’re trying to do is provide value in a way that allows consumers to understand, feel, and gain more taste."
When I asked Gharegozlou how big Dapper is, he said, "If you think about it, just in the last few months, NFT trading volume has reached $25 billion," he calmly sipped his espresso. "It’s bigger than trading cards. It’s bigger than FIFA Ultimate Team. It’s even bigger than the sneaker market (the secondary market for sneakers is about $20 billion). Products are starting to catch up and evolve… Ultimately, I think the target market is everyone with a mobile phone."
This would put 3 billion people on Dapper's blockchain. Will he see this happen soon?
Gharegozlou laughed. "Maybe not this year," he said, "but we will make a difference."
Related Reading:
"$2 Billion? Understanding the Logic Behind Flow and Dapper Labs' High Valuation"
"From Sports IP to the Fastest Growing Public Chain in History, A Detailed Explanation of the Flow Public Chain Ecosystem and Development"
"Dapper Labs CEO: I Love Pop Mart, NFTs Will Scale the Collectibles Market to Trillions"