Interactive Sports Marketplace for Collectable Tokens

How much fun would it be to become a stakeholder in your favorite athlete? Sports lovers can now interact with chosen players and get rewarded.

Join UPenn scholars Arham Habib and Arpan Bagui talking about their journey creating an NFT Marketplace for athletes and their fans; VO2. This blockchain start-up that advanced through the Cypher Accelerator, builds community engagement with an engage to earn model that gives pro athletes a way to directly participate with their fan community. This is one more way we are seeing blockchain become mainstream, generating interactive communities.

00:06):

Hi, this is Lauren Weymouth, your host of All About Blockchain, and we're here to explore all different kinds of use cases in this developing and growing technology together. This industry's gotten a lot of negative press lately with the volatility of the crypto market, and companies that are going out of business because of it. But there's a lot of other important innovations using blockchain beyond crypto. Today, we're gonna hear from startup founders who created an NFT marketplace for athletes and their fans. Sports lovers, this is a new and in- Sports lovers, this is a new way of interacting with your favorite players, and getting rewarded for this activity.

Arham Habib and Arpan Bagui are undergraduate students who co-founded VO2. Arham studies statistics and math at UPenn and is interested in prediction markets, automated market makers, and better derivative markets. He is also a massive Golden States Warriors fan. Go Warriors! Arpan studies statistics and computer science also at UPenn and likes sports, music and breakdancing. They took VO2 through Wharton's Cypher Accelerator. Arham, Arpan, welcome to the show.

Arham Habib (01:05):

It's a pleasure to be here.

Arpan Bagui (00:06):

Thank you for the intros, Lauren.

Lauren Weymouth (00:07):

(laughs) All right, well, jumping right in. When did you first conceive of VO2?

Arham Habib (01:13):

Over the summer, I realized that sports betting was kind of going through a genesis, with legalization in the United States. And something that didn't make a lot of sense to me, was that athletes were kind of cut out of that value chain. You see players like DraftKings or FanDuels making a lot of that money.

And we realized that fans enjoy betting, but they also really enjoy engaging with athletes and meaningfully having stakes in their careers. And so we came into this, trying to reconceptualize the paradigm of fans getting involved in sports in such a way that both fans and athletes can benefit.

Lauren Weymouth (01:43):

Well, it sounds like you're both avid sports fans yourselves. Can you share any background or personal stories that really inspire this idea, or give you the passion to run a company on it?

Arpan Bagui (01:52):

I've been watching sports ever since... Honestly, like... Yeah, since I was 5. Like as a little kid, I just remember watching Dolphins games. And one thing that kind of didn't resonate that well with me was how separate the fan experience is from the athlete experience.

Um, if you go to a concert for example, you feel pretty close to the artists that you're going... Or the musician that you're seeing. Athletes have always been pretty removed. So that's kind of the dissonance that we were trying to solve here. As a sports fan myself, I thought, "Hey, like now we have this technology that enables people to feel closer together, and also provides a financialization aspect to it." Um, two of my interests right there, combined into one. So it was definitely a very easy transition, going from school into creating this project.

Arham Habib (02:33):

All I have to add there, is I had the chance to play pick up basketball with Klay in high school. That was such a great time. and after that, I've been hooked. I've really wanted to find ways for more fans to experience similar experiences.

Lauren Weymouth (02:45):

Wait, Klay Thompson?

Arham Habib (02:46):

Klay Thompson, yeah.

Lauren Weymouth (02:47):

S- so are you a Washington guy?

Arham Habib (02:49):

I grew up in the Bay Area. I grew up in San Rafil, which is not too far away from where the Warriors play. and so for a charity event, I got to play pick up against him. And obviously, [inaudible 00:04:29]-

Arpan Bagui (02:58):

Wait, I- I just have... I just have one question. All right, what wa- what was the score?

Lauren Weymouth (03:01):

(laughs)

Arham Habib (03:02):

We're not talking about that (laughs).

Arpan Bagui (03:04):

Okay. Got you, got you.

Arham Habib (03:05):

Next question, please.

Lauren Weymouth (03:06):

Well, I asked if you were a Washington guy I hear about Klay Thompson all the time. My wife went to Washington State. He's a fellow Coug. And so, she's a big fan as well. But that's awesome that you got to play with him. All right. So you've got a real problem that you're trying to solve for here. And how'd you go about commercializing this idea?

Arham Habib (03:21):

Yeah. So there was one player that set a lot of the groundwork for this, and that's Spencer Dinwiddie. He was in the Nets at the time that he issued something called The Professional Athlete Investment Token. And what this basically was, was a security that let fans invest in his career.

And at the time, there were two big drawbacks with it. The first was that it was traded through an alternative trading system, so there wasn't too much liquidity. The second was that you had to divvy up $150,000 to get involved in that deal, which the average sports fan doesn't have.

But that idea of athletes IPOing as a way to give fans skin in the game, or investors skin in the game, really kind of stuck with me. And I realized there was a way to do it that would make the fans benefit as the asset appreciated. Athletes could get capital up front. And we could take some of the cut of... One, the IPO, and two, the transactions. And so, that was when this transitioned from a passion project to a viable business.

Lauren Weymouth (04:09):

And for people who are just starting to understand how blockchain works... You don't need to get too technical here, but how does blockchain make this new marketplace possible?

Arpan Bagui (04:18):

Yeah. I think blockchain is a very valuable technology when it comes to cutting out middle men. And middle men have played the sports industry. So not to call out entire industries, I think there's definitely a place for sports agents and other sorts of middle players, for the time being. I do see a future where you see fans and athletes much more connected, and a lot of those middle parties being automated away through technologies like blockchain.

Arham can definitely talk about this. He knows a lot about blockchain as a data structure. And at the end of the day, that's all it is. So Arham, if you want to take it away, and talk about how that data structure is so useful when it comes to connecting two parties.

Arham Habib (04:54):

Yeah, absolutely. I guess where I'll start off with, is this is not a novel idea. People have been trying to make sports marketplaces since the '80s. And historically where these ideas fail, is in athlete IPOs themself... And then, there's no trading in the secondary market, because you have to have a buyer if you want to sell shares, and vice versa.

And so, a data structure that I was really interested in was automated market makers. Which were just introduced in the last five to six years, and kind of pioneered by Uniswap or Balancer. And you see a lot of utility for these in trading small cap tokens that aren't big enough to be listed on exchanges.

And my thought process was, "Well, if you take this really ill liquid security, that represents basically an athlete's cash flow... That doesn't have much of a market around it. If you want it to be liquid in any kind of way, an automated market marker might facilitate this in a good way. It'll create a market where alternative trading systems have failed in the past."

So that's why from a- from a kind of finance perspective... Maybe this is a little bit too technical. But that's why I think for securities like this, blockchain makes a lot of sense.

Lauren Weymouth (05:56):

We definitely hear that. And it's so impressive that you've taken this idea, and you've actually started VO2. And I know you've gone through Wharton Cypher Accelerator program. I can kind of extrapolate that because you're already undergraduate students on campus, that's how you chose this particular accelerator. Can you tell us about the experience going through it, and what it brought to you?

Arpan Bagui (08:00):

The Cypher Accelerator was super, super cool. Huge shout out to Sarah Hammer. She's actually the Director at the Stevens Center of Innovation in Finance, here at Wharton. I knew of her when I was working under her at the Stevens Center. And this had nothing to do with the Cypher Accelerator, I was actually just doing unrelated blockchain research there.

But that's how I got introduced to the Cypher Accelerator. Simultaneously, Arham invites me to this dorm room, and is like, "Yo, I have a really cool idea." And I'm like, "Wow, I have a really cool accelerator I know about." Uh, one thing led to another. We made enough progress to get to a point where we felt comfortable applying, the January of 2021. We were Wharton undergraduates, so we knew kind of how the program worked. And Arham, if you want to talk a little bit about what happened within the program, uh, I can hand it off to you.

Arham Habib (06:56):

Yeah. The actual structure of the program was really interesting. So, we were the only undergraduate team that was part of it. And there were companies that ranged from kind of a pre-seed area, where we were, all the way to Roofstock, which is a Series E company that just launched their blockchain offshoot and tokenized the first mortgage. It was really exciting to learn from people that not only had an expertise over blockchain, but understood the ops of running a company. Which is not something you'd see 20-year-olds were very talented at from the get go. And that was kind of our launchpad into raising actual institutional venture capital. Joining a larger accelerator in the form of the Techstars program, and kind of going zero to one in the sides. Yeah.

Lauren Weymouth (07:36):

I was going to say, we had Sanjay and Jeffrey from Roofstock on the show a month ago, and they said the same thing. That the network was one of the most powerful things being in the accelerator. But, what else?

Arpan Bagui (09:41):

So, Wharton is right there at the intersection of... Because you know, it's based in Philly. We have strong connections to the 76ers and Joshua Harris. So, we were in a perfect position to... A, get all of the expertise and know how from people who are connected to Wharton through the blockchain community. But also surprisingly, we were connected with people from the 76ers. And that was also a really unique experience for 2 graduates who love sports and blockchain. A lot of network to utilize and leverage, and we were benefiting from it all.

Lauren Weymouth (8:12):

Okay. Well, that's a perfect lead into us wanting to know what athletes are actually on the platform.

Arham Habib (8:19):

We kind of did our beta launch with four women's basketball players, Two of whom, now play in the WNBA. That was really exciting, because that's a historically underrepresented part of sports, and an under monetized part of sports. and that also gave us a lot of feedback for launching kind of the first version of our official product, which was with Tony Ferguson, who's a UFC fighter.

It was a token that let his fans interact with him, and kind of make decisions for him. And the next step was going to be launching our first security. These tokens in the past gave fans the right to interact with athletes, and kind of test out the underlying tech. And to launch the security that's used... You know, in a regulatory, compliant way, you have to go through the SCC... You have to go through a securities exemption, like Reg A, +, Reg D, Reg CF. Or you have to, you know, functionally IPO, which is a little bit more difficult. We talked to some football teams in the UK about launching kind of a player security, that gave fans the ability to invest in the freshman class of the team. And I won't name them over here, because that deal later fell through after the UK macro situation kind of worsened. But that was the next step of this startup.

Lauren Weymouth (9:25):

All right. So as you got various different sports, and athletes, and talent on there, how did you go about targeting the fans?

Arpan Bagui (9:32):

Yeah. So on the fan end, it was a lot of direct marketing. And you know, this is something that applies to a lot of companies, I'd say. Reaching out to fans began on word of mouth, actually. So, we first started talking to a lot of our friends here at Penn who are also interested in sports. Our four women's athletes that we began with, were all college athletes when we started. And being college students then, made a very natural way to communicate with them. We reached out to people on their respective campuses. And got a lot of feedback from the teams, and we were even able to talk to the athletes themselves.

It's, Veronica Burton and Shakira Austin are the two who went to the WNBA.

It was really cool kind of reaching out to other fans who we knew of, and then letting that network expand. Of course with all of these sorts of direct to consumer sort of startups the network has to develop, and then you reach more and more fans. And getting to that point is definitely a difficult thing.

Lauren Weymouth (10:24):

Is anyone else out there doing this? Do you have any competitors in this space?

Arham Habib (10:27):

A handful of people that are focused on kind of the social tokenization of athletes. But I think the two biggest players, are definitely Socios and Sorare. And what Sorare has done, which is really cool, is focused on a tokenized version of basically fantasy sports. That I think is a major ch- threat to players like DraftKings or FanDuels, and their daily fantasy. And Socios, which tried to create a sports stock market. And I know that they've inked deals with a lot of teams in the United States, even though their same security challenges have been why they haven't gone to market yet.

What I wasn't a huge fan of with these models, is that they inked deals with the leagues instead of the teams. And whenever possible, I feel like athletes... Who are the ones that are delivering value to fans, should be directly generating revenue from these. But with that being said, a lot of respect to those founders. They've been at it for years and years, I think four years now. And have done a fantastic job scaling.

Lauren Weymouth (11:18):

Okay. So again the way you're differentiating VO2, is that direct access to the athletes. Getting them to engage with the fans, not through a league or through an entire sector of middle men.

Arham Habib (11:28):

Right.

Lauren Weymouth (11:29):

Okay, good.

Lauren Weymouth (11:31):

How else would you differentiate VO2 from Socio and the other platforms out there?

Arpan Bagui (11:36):

Socios is definitely a large, large player in the space. And I think they were smart about one thing. so Arham mentioned that we face similar security obstacles that Socios faces.In the sense that we're both trying to create financial assets that kind of represent the right to engage with an athlete.

Socios has one advantage that we don't, and that's besides their experience, and they've been working at this for four, five years now. They have a lot of capital backing them. So they've gone about it actually the opposite direction that we have. So they've approached the leagues with like huge amounts of capital. And without creating a single security, so they don't have to deal with the SCC at all. They've inked deals, so that in the future, once they get SCC approved, they can start issuing out these securities. Whereas we wanted to focus on the athletes more. And our big differentiator is really the way we engage with athletes personally. Or how our tokens allow fans to directly tell an athlete like, "Hey, I want you to do this touchdown celebration." Or, "I want you to focus on X particular skill." And these are all very rough ways to interact. But we wanted to focus on those first. Because one, those token value go directly to the athlete. And two, the fans feel a lot more personally engaged. So that's how were differentiating on that aspect.

Lauren Weymouth (12:42):

And as you've been building, are there any partners you're working with?

Arpan Bagui (12:46):

We've been working pretty closely with a few different agencies. The agency that actually put us in touch with those women's athletes that would be Curran Media. And they've been huge mentors to us in this space. They kind of taught us a lot about how the sports industry works. Especially traditionally, with all the agents doing the communication between the athlete and people that want to work with the athlete.

We've also worked with Tony Ferguson's team VaynerSports, and they've also been monumental for us in getting that connection. Through that, we've kind of met more and more people in the space. And if I were to thank everyone who's helped us, it would be a pretty long list. But those are two that come to mind.

Lauren Weymouth (13:17):

We've been hearing over and over again how one thing that distinguishes the Web3 marketplace or sector is that startup companies don't necessarily have to build everything themselves. Right? They can reach out, and not reinvent the wheel, tap into and partner with different companies that are building different things. So like for example what blockchain are you using to build on?

Arpan Bagui (13:37):

We are building on Polygon actually and there's a really cool point I want to add on there too. So people talk about Web3 companies, and how there is a huge boom in Web3 companies. And yes, things have like been a little bit- looking a little bit different as of late. But one thing that we kind of benefit from, is that Web2 already exists. The networks on social media already exist. So, whereas all these... You know, the previous boom of startups... think Instagram. Think Facebook. They had to develop their networks from scratch. Web3 companies can rely on the networks that were developed before us, and really just make improvements, create new incentive structures. And then add the financialization aspect, that crypto and blockchain is so good at creating. And we can leverage those preexisting networks to grow, uh, which is why a lot of Web3 companies boomed really, really quickly.

Lauren Weymouth (14:18):

So there has been some unexpected twists in the marketplace recently. How has this affected your business?

Arham Habib (14:24):

Yeah. So, A good chunk of our asset were custodied in FTX. The reason for that being that a lot of our contractors being a Web3 company, wanted to be paid in crypto. We thought that a custodial solution was a little bit more secure than just a MetaMask or a multisig Gnosis. Plus we wouldn't have to pay gas. Obviously, we ended up kind of paying for that decision.

Beyond that, just the greater turmoil after Terra Luna and the Three Arrows Capital collapse... And FTX, means that there is much greater regulatory scrutiny over any tokenized securities. Even if there is, for example, a real special purpose vehicle or LLC, collateralizing these. And that's made our path forward in issuing athlete-backed securities, a bit more challenging.

Lauren Weymouth (15:06):

Okay. So with FTX going under and a lot of your assets custodied on it how are you proceeding?

Arham Habib (15:12):

We have a few options. One is to figure out a way to proceed that's less cash flow intensive. Or more cash flow positive, I suppose. So this would be focusing on athletes doing social tokens, the way that the WNBA players, or the way that Tony Ferguson, did.

And perhaps, putting securitization on the back burner. Because that involves paying a federal license broker dealer. That involves, Actually, I can keep pulling the deals that- that don't necessarily need to be there. Um, and there's also a lot of- a pretty high cache. That just goes into showing consumers that these securities are real financial instruments that you should be investing in if you're interested in these athletes. So, that's one path that we could be taking. Arpan, do you have any other thoughts?

Arpan Bagui (15:51):

Yeah. I think the way we always wanted to take VO2, was to create that financial asset. To create something that represented the right to engage with athletes, and maybe even represent a future share of their earnings. Arham talked about what the business model would look like, and how that benefits an athlete. How that benefits a current fan. The issue with that is, it's currently noncompliant. And the regulations regarding the securitization of real world and non real world assets, is still so much in flux. our path moving forward, is to wait and see what that regulation looks like.

The product will still be usable. We'll still have all the perks and ways to engage with the current athletes that are listed on the platform. And as the case with many companies that are in this sphere, we just need to wait until regulation is consistent and enforced in a uniform way. And then we'll have a much clearer idea of what to do. It's a waiting game right now.

Lauren Weymouth (16:41):

And that's a real strategy. I think you're not alone in the look see of what's next. You did mention that when you went through the Cypher Accelerator, you were pre-seed. Did you end up raising any capital?

Arham Habib (16:55):

Yes. We've raised about $350,000 shoutout to one VC, Eberg Capital. That's Roger Ehrenberg's family office. And they were the first to cut us a check. After that, we also raised some money from TechStars. Specifically the Sports Accelerator, which is led by Jordan Fliegel. And a General Catalyst student-run branch, Rough Draft Ventures. And Jeremy Navarro is our point person there.

In addition to that, I'll shout out Cypher for giving us the first check into the company. Actually, on me and Arpan's 20th birthday, which was really exciting. Cory Levy, for giving us $10,000 to be in the Z Fellos program. And Arizona State University, for giving us the Sun Devil Innovation Grant, to work on project that benefits athletes.

Lauren Weymouth (17:33):

Well, congratulations to you for tapping into all of these avenues for investment.

So given the current climate, where do you see blockchain going in the next five years?

Arham Habib (17:41):

I think there's really interesting use cases when you get real assets on chain. I share the skepticism that randomly minted tokens, like FTT for example, are going to retain value. That's kind of anyone's question. But I really like projects like Royal, which tokenizes music royalties, and is backed by real cash flows... In a way that there's a real company backing these cash flows, a shell LLC.

That's also I think, the direction that sports are going to go. That's the direction that I think a lot of equities or derivatives are going to go, just because you can cut out a lot of middle men. For example, with exotic derivatives, instead of getting a, a prime broker, like JP Morgan, to register them. If you can govern those through a smart contract.

I see a lot of just general financial infrastructure moving on chain, in such a way that blockchain is the backend. But the value prop is not that it's crypto and it exists in a blockchain, it's that this facilitates a more transparent, fast or efficient marketplace. There is a lot of intelligent people that have made a variety of guesses, and- and a lot can change in five years, as we've seen.

Lauren Weymouth (18:45):

An awful lot can change in six months.

Arham Habib (18:46):

Right.

Lauren Weymouth (18:47):

And you're mathletes. You're engineers. Do you f- see yourselves as serial entrepreneurs, or do you think When you graduate, you'll join companies? What do you see as your future career paths?

Arpan Bagui (18:55):

We've both gone through pretty interesting journeys starting from the beginning of VO2, and previous to that. And what I realized through this process, is that I do love building things. I love shipping things out. And I want to continue building things and doing interesting things. I will also say, that running a company was a very difficult task, and I have to build a lot of hard skills before I do that again. So, it's a balancing act. I want to continue building things and shipping things out. But more so- out of interest, more so, because I like making cool things. And then when I think, "Okay, this is the one that has demand and it's solving a real issue," that is the one that I will turn into a company. So I do think there's a distinction there between building cool things, and building a company. Both of which I have an interest in. but I'll probably wait on the latter until I feel more ready.

Lauren Weymouth (19:39):

You know, I think most people find that starting up a company is a really difficult task, with all kinds of road blocks in the way. You're doing it while completing a degree, which is phenomenal. Kudos and hats off, to you both.

CUT TO

Lauren Weymouth (20:16):

You said you loved building and shipping. Did you get interested in building and shipping or start to develop skills for that, doing hackathons? Or hacker houses? Or that kind of thing? How did you start?

Arpan Bagui (20:25):

Yeah, great question. it's crazy. I started by being thrown into the deep end, with VO2. I came into VO2 over a year ago, with little to no actual software development experience. I know Python, and I knew data science skills so I was able to kind of, you know, carry my own weight from the beginning.

And then throughout that process, I ran into so many talented developers. Even the ones on our team. shoutout to Alex. Shoutout to June. They taught me a lot on how to get started with them. And since then it's been awesome. I've been learning a lot about the space. I've gone to multiple hackathons. And that's definitely the way to learn. You throw yourself into difficult situations, and then you build things that you think are cool. it's a been a pleasure so far, and I want to continue.

Lauren Weymouth (21:03):

What are the big hackathons that you recommend?

Arpan Bagui (21:06):

The big ones that I recommend in the cryptosphere- Riptide, Solana is a huge one. And Solana is it's own developer ecosystem. If you're interested in Solana, there's a ton of Solana-hosted events, besides Riptide. Polygon has a lot as well, and that's all Web3 focused. Outside of the Web3 sphere, there are just so many. I know one that me and Arham went to together was Rough Draft Venture's own hackathon. And I think that was one of the first ones we went to.

(27:31):

There are tons online. If- if anyone is interested, I would recommend you go to Devpost.com, that's kind of a directory, where you can sign up for hackathons, and really build those skills and start shipping things. You run into a lot of cool people. Highly, highly recommend.

Arham Habib (21:45):

I guess the other thing that I would say here, is I came into this with the misconception that... I knew a little bit of Python, and I knew a little bit of Java and therefore, I'd be able to jump into Solidity and writing smart contracts. And one maybe humbling takeaway, was you have to walk before you can run. Solidity is easy to patch together and hard to do right, and I think a lot of high profile hacks have really highlighted that. So Arpan and I ended up sticking to a lot more front-end development. We learned a little bit about database integration. We learned a little bit about how social media networks are run, which I know is one of his interests now. And I'm hoping to eventually learn Rust and C++, which will hopefully give me the background in, you know, virtual machines and execution environments, to start taking Solidity a little bit more seriously.

BACK TO

Lauren Weymouth (19:51)

Where can our listeners learn more about your research, or your company? What you're working on?

Arham Habib (19:56):

I have my own personal website, at just ArhamH.com. You can feel free to check out what we're doing in VO2, at VO2.fans. And Arpan, do you want to plug yourself?

Arpan Bagui (20:05):

Yeah, absolutely. I have a lot of projects that are in the works. And if this comes out and you're listening at the time that this is live, it is going to be at ArpanB.com.

Lauren Weymouth (20:16):

Arpan Bagui (20:25):

Lauren Weymouth (21:03):

What are the big hackathons that you recommend?

Arpan Bagui (21:06):

(27:31):

Arham Habib (21:45):

Lauren Weymouth (22:33):

What an extraordinary learning experience. Arham and Arpan, you are pioneering the engage to earn model, giving pro athletes a way to directly participate with their fan community and creating an interactive marketplace for collectible tokens. This is another way we are seeing blockchain become mainstream, generating interactive communities -You're putting the fun into following sports and falling in love with our heroes. Thank you for sharing this with us and for being on All About Blockchain.

Arham Habib (23:01):

Thanks again for having us. It was a pleasure.

Arpan Bagui (23:02):

It was so, so fun. Thank you, Lauren.

Lauren Weymouth (23:04):

We love you being on this journey of technology discovery with us, as the doers are unfolding new possibilities in real time. Until next time.

END

All About Blockchain

Interactive Sports Marketplace for Collectable Tokens | VO2

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