Unlayered Podcast: Richard from Tensor on NFT Marketplaces and Solana Innovation

The Birth of Tensor: From YC Startup School to Solana Innovation

The story of Tensor, one of Solana's leading NFT marketplaces, began with a serendipitous meeting on Y Combinator's Startup School co-founding matching portal. Richard, one of Tensor's co-founders, was working as a quant researcher at Two Sigma when he felt the itch to build a product from scratch. His search led him to Iliya, who had been building on Solana for about a year at that time.

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Richard recalls, "I had some interest in Web3, but I wasn't totally like red-pilled into it. And so we just started exchanging notes about that." This exchange of ideas eventually led to a full-time commitment to building what would become Tensor. Richard quit his job, and Iliya flew from Riga, Latvia to Toronto, Canada, where they could work side by side on their new venture.

The decision to work together in person was crucial for the project's success. Richard explains, "We decided to fly down to Toronto so that we could jam together in person and like, uh, almost like a hacker room together." This physical proximity allowed for rapid iteration and development, setting the foundation for Tensor's future success.

Tensor's Unique Value Proposition in the NFT Marketplace

Tensor entered the NFT marketplace scene with a clear vision: to cater to the underserved pro-user segment. Richard and his team observed that existing NFT marketplaces were primarily geared towards retail audiences, essentially replicating web2 marketplace models like Amazon or eBay. However, they identified a significant portion of users who desired a more sophisticated trading experience.

"We personally ourselves wanted that experience too," Richard explains. "And so it was kind of a no-brainer to us that if we ourselves wanted a terminal-like experience for trading NFTs, and if we know 10, 20, 30 other guys in our DMs right now, who also want something similar, then why not build it and see what happens."

This insight led to the development of Tensor as a pro-trading platform for NFTs on Solana. The team aimed to create an experience similar to professional trading platforms like Binance or FTX, but specifically tailored for the NFT market.

Rapid Development and Launch

Tensor's development timeline was impressively swift. The team began building the platform in early May 2022, launched a closed beta in June, and went public in July of the same year. This rapid progression from concept to public launch demonstrates the team's efficiency and the market's readiness for such a platform.

Richard attributes this quick turnaround to their technical backgrounds and willingness to learn on the go. "Neither of us had experience building an exchange or like a marketplace. Neither of us had experience building a consumer app that service tens of thousands, hundreds of thousands of users. And we kind of just figured out all of that stuff along the way," he admits.

The Power Law Effect in NFT Trading

One of the key insights driving Tensor's strategy was the recognition of the power law effect in trading markets. Richard explains, "We knew that with all exchanges out there, token exchanges, equity exchanges, that's sort of my background, like the traditional financial markets. There's this power law effect where the top 20% of traders, the top 20% of market makers, make up 80% of the volume."

This understanding led Tensor to focus on catering to high-volume pro traders, even if it meant a smaller user base. The team believed that by serving this segment effectively, they could capture a significant portion of the overall trading volume in the NFT market.

Evolving User Preferences and Product Design

As Tensor grew, the team observed an interesting trend in user preferences. Initially designed with a focus on pro traders, they noticed that an increasing number of users were gravitating towards a simpler interface. Richard reveals, "What we're seeing is that the number of users using the Pro interface has actually plateaued for us, while the number of users using our light mode is actually still increasing day over day."

This shift in user behavior has prompted Tensor to reconsider its product design strategy. While maintaining their commitment to pro users, they are now exploring ways to make the platform more accessible to retail users. Richard compares this approach to the difference between Robinhood and Fidelity in the traditional stock trading world.

The Challenge of Building Moats in Web3

In the rapidly evolving world of Web3, building sustainable competitive advantages, or moats, presents unique challenges. Richard believes that traditional moats like liquidity or brand recognition are not as effective in the crypto space. Instead, he emphasizes the importance of user habits and product quality.

"I think in Web3 specifically, for consumer apps like Tensor, I think the biggest moat of anything, it's not liquidity. I don't think it's liquidity as we've clearly seen time and time again with vampire attacks with incentivization drawing away that liquidity. I also don't think it's entirely just brand. I think it's actually it's a mixture of a really great product. And people's habits being tied to using your product every single day," Richard explains.

This focus on creating a seamless, habit-forming user experience has been central to Tensor's strategy for retaining and growing its user base.

The Future of NFTs and Consumer Adoption

Looking ahead, Richard sees significant potential for NFTs beyond their current use cases. He envisions NFTs playing a role in various consumer applications, from chat stickers to gaming assets. One particularly interesting trend he highlights is the use of NFTs as an acquisition tool for apps and platforms.

"I think one thing that is one trend that we're starting to see come out is actually using NFTs as almost like an acquisition tool where you can convince people to download your app, convince people to show up every day to do these daily streaks in order to get one of these compressed NFTs or like almost like a collectible," Richard explains.

This approach could revolutionize user engagement and loyalty programs across various digital platforms.

Compressed NFTs: A Game-Changer for NFT Creation

One of the most exciting developments in the NFT space that Tensor has embraced is the concept of compressed NFTs on Solana. Richard enthusiastically explains the potential of this technology: "Compressed NFTs on Solana is basically a way for people to create million NFTs instead of four tens of thousands, hundreds of thousands of dollars. You can now create a million NFTs on Solana for less than $100."

This dramatic reduction in the cost of NFT creation opens up a whole new realm of possibilities for creators and platforms. It allows for the implementation of NFT-based loyalty programs, digital collectibles, and other use cases that were previously cost-prohibitive.

The Tensorins: Tensor's Own NFT Collection

To showcase the potential of compressed NFTs and build a stronger community around their platform, Tensor launched their own 10K PFP (Profile Picture) collection called the Tensorins. This collection serves multiple purposes for the platform:

1. It demonstrates the feasibility of creating a large-scale NFT collection using compressed NFTs.
2. It helps build a dedicated community of Tensor supporters and users.
3. It provides a way for Tensor to identify and reward its most engaged users.

Richard explains the benefits of this approach: "For us, we're able to do a lot of cool things that we hadn't have done before. So one thing is we're able to a bunch of rewards to all of these holders and all of our super fans without having to try to figure out like, okay, let's have, you know, without having to like have some sort of like survey on our website, asking people like, 'Are you a super fan? How much soul are you trading on Tensor?'"

The Challenges of NFT Airdrops and Community Building

The launch of the Tensorins collection and subsequent airdrops revealed some challenges in managing community expectations. Richard candidly discusses an airdrop that received mixed reactions from the community. The team had intended to distribute NFTs from collections they had partnered with in the past to Tensorin holders. However, due to limited supply, only about 30-40% of holders received an airdrop.

This experience taught the team valuable lessons about communication and managing airdrops. Richard reflects, "Next time, if you say an air drop, let's not do a raffle-based air drop because people who don't get anything will be frustrated. And perhaps we could have made it a much longer event where it wasn't just a once-and-done flash in the pan air drop."

Solana's Advantages and Tensor's Commitment

While Tensor is not exclusively committed to Solana, the team sees significant advantages in the blockchain for their purposes. Richard explains their rationale: "We're not at all Solana Maxis, but we are UX Maxis and we are like technology Maxis. And the reason why we gravitated towards Solana was because one, it had the most promise of becoming the chain to essentially enable mass consumer adoption."

The team appreciates Solana's low transaction costs and its proven ability to handle high user loads. However, they remain open to exploring other chains if they see potential for vibrant NFT ecosystems developing elsewhere.

The Future of NFTs: Beyond PFPs and Art

Richard envisions a future for NFTs that goes far beyond the current focus on profile pictures and digital art. He sees potential in various sectors, including gaming, consumer apps, and even as tools for user acquisition and engagement. However, he also recognizes the challenges in expanding into more specialized NFT use cases, such as real estate or bonds.

"I think for Tensor, what we're really digging into is sort of the user behavior and the user desire to buy and sell things and try to speculate on assets. I don't think we necessarily want to dig into any specific use case of NFTs, like real estate, like bonds, like art. Ideally, we want to become the most comprehensive marketplace, the fastest, the most user-friendly marketplace and platform to trade any NFTs if you're just there to buy and sell," Richard explains.

Building a Comprehensive NFT Ecosystem

Tensor's vision extends beyond just being a marketplace. The team aims to create a comprehensive ecosystem that caters to all aspects of the NFT lifecycle. Richard hints at upcoming announcements: "One of the things that we'll probably announce very soon is tooling for creators to create NFTs and specifically compress NFTs."

This holistic approach aims to make Tensor a one-stop solution for creators, collectors, and traders in the NFT space. By providing tools for creation, management, and trading, Tensor hopes to streamline the entire NFT experience on Solana.

The Role of Speculation in Crypto Adoption

Reflecting on his journey in the crypto space, Richard acknowledges the role of speculation in driving adoption. While he maintains an optimistic view of the technology's potential, he recognizes that speculation has been a key driver of interest and development in the crypto world.

"Everything in crypto is about speculation, but that's okay because that's how we bootstrap all the builders, that's how we bootstrap all the early customers, all the early users to start using this technology and to actually build things on top," Richard explains. He sees this speculative phase as a necessary step towards realizing the more transformative potential of blockchain technology.

The Path to Decentralization

Looking to the future, Richard expresses a desire to move Tensor towards greater decentralization. While acknowledging the legal and technical challenges involved, he outlines a vision where the Tensor protocol becomes an immutable part of the Solana blockchain, with its parameters and fee settings managed by the broader Tensor ecosystem rather than a centralized team.

This move towards decentralization aligns with the broader ethos of the crypto space and could potentially enhance the platform's resilience and community involvement in the long term.

Challenges in User Experience and Adoption

Richard candidly discusses the challenges that still exist in making crypto applications user-friendly for the masses. He shares a personal anecdote about his own difficulties in using OpenSea in 2020, highlighting issues with wallet management and understanding concepts like wrapped tokens.

These experiences have informed Tensor's approach to user experience design. The team is actively working on simplifying the self-custody aspect of crypto and making the overall experience of buying and selling NFTs as straightforward as using popular e-commerce platforms like Amazon or eBay.

The Potential of Crypto as a Global Financial System

One of Richard's most ambitious visions for the crypto space is its potential to revolutionize the global financial system. He expresses excitement about the possibility of onboarding billions of people to use crypto as the settlement layer for all financial transactions.

"How do we move essentially the entire world and the financial system onto crypto and build incentivization mechanisms to do that?" Richard ponders. He sees this as a way to overcome the limitations of the current banking system, such as slow transfer times and inefficiencies during holidays or weekends.

The Importance of Emotional Connection in NFTs

Richard highlights a unique aspect of NFTs that sets them apart from other crypto assets: their ability to create emotional connections with users. He explains, "There's a highly emotional and social aspect to them that you won't be able to find with tokens."

This emotional attachment, often referred to as the endowment effect, can be a powerful driver of user engagement and loyalty. Richard sees this as a key advantage for consumer apps looking to build strong, lasting relationships with their users.

Lessons Learned and Future Outlook

Reflecting on his journey in the crypto space, Richard acknowledges that his initial optimism has been tempered by a more nuanced understanding of the challenges and realities of the industry. However, he remains enthusiastic about the potential of blockchain technology to enable new and innovative use cases.

As Tensor continues to evolve, the team is focused on building tools and experiences that will make NFTs more accessible and useful to a broader audience. With their commitment to innovation and user-centric design, Tensor is well-positioned to play a significant role in shaping the future of NFTs on Solana and beyond.

Facts + Figures

• Tensor began building their NFT marketplace in early May 2022, launched a closed beta in June, and went public in July 2022.
• The Tensorins, Tensor's own NFT collection, consists of 10,000 compressed NFTs on Solana.
• Compressed NFTs on Solana allow for the creation of a million NFTs for less than $100, compared to tens or hundreds of thousands of dollars previously.
• Tensor observed that 75% of their users prefer the light interface over the pro trading interface.
• The power law effect in trading suggests that the top 20% of traders make up 80% of the volume on exchanges.
• Tensor's airdrop to Tensorin holders reached only 30-40% of holders due to limited supply.
• Tensor plans to announce tooling for creators to create and manage compressed NFTs on Solana.
• Richard estimates that 80% of Bitcoin capital is locked up in institutional holdings or trusts.
• Tensor aims to become a comprehensive ecosystem for creating, managing, and trading NFTs on Solana.
• The team is exploring ways to make their platform more accessible to retail users while maintaining pro-trader features.
• Tensor is considering paths to decentralization, aiming to make their protocol an immutable part of the Solana blockchain.
• The co-founders of Tensor met through Y Combinator's Startup School co-founding matching portal.
• Richard previously worked as a quant researcher at Two Sigma before co-founding Tensor.
• Tensor's development from concept to public launch took approximately three months.
• The team acknowledges that speculation has been a key driver of interest and development in the crypto world.

Questions Answered

How did Tensor get started?

Tensor was founded by Richard and Iliya, who met through Y Combinator's Startup School co-founding matching portal. Richard was working as a quant researcher at Two Sigma when he felt the urge to build a product from scratch. They began building Tensor in early May 2022, launched a closed beta in June, and went public in July of the same year. The co-founders decided to work together in person in Toronto to rapidly develop their NFT marketplace on Solana.

What makes Tensor different from other NFT marketplaces?

Tensor differentiates itself by focusing on pro traders and offering a terminal-like experience for NFT trading. The platform was designed to cater to sophisticated users who wanted more advanced features than typical retail-oriented NFT marketplaces. Tensor aims to provide a comprehensive ecosystem for creating, managing, and trading NFTs on Solana, with plans to introduce tools for creators to work with compressed NFTs.

What are compressed NFTs and why are they important?

Compressed NFTs are a new standard on Solana that dramatically reduces the cost of creating NFTs. With compressed NFTs, creators can mint a million NFTs for less than $100, compared to tens or hundreds of thousands of dollars previously. This innovation opens up new possibilities for NFT use cases, such as loyalty programs, digital collectibles, and other applications that were previously cost-prohibitive. Tensor has embraced this technology and even launched their own compressed NFT collection called Tensorins.

How is Tensor addressing the challenges of user experience in crypto?

Tensor is actively working on simplifying the user experience for NFT trading. While they initially focused on pro traders, they've observed that many users prefer a simpler interface. As a result, they're developing a more accessible "light mode" for retail users while maintaining advanced features for professionals. The team is also exploring ways to simplify self-custody and make the overall experience of buying and selling NFTs as straightforward as using popular e-commerce platforms.

What is Tensor's vision for the future of NFTs and crypto?

Tensor envisions a future where NFTs play a significant role in various consumer applications, from chat stickers to gaming assets. They see potential for NFTs to be used as acquisition tools for apps and platforms, enhancing user engagement and loyalty. Beyond NFTs, the team believes in the potential of crypto to revolutionize the global financial system, providing faster and more efficient transactions. Tensor aims to be at the forefront of these developments, creating tools and experiences that make crypto more accessible and useful to a broader audience.

How does Tensor plan to maintain its competitive edge in the NFT marketplace?

Tensor focuses on creating a superior user experience and fostering user habits as their primary competitive advantage. Rather than relying solely on liquidity or brand recognition, they believe that building a product that users interact with daily and become accustomed to is key to long-term success. Additionally, Tensor is working on creating a comprehensive ecosystem for NFTs, including tools for creation and management, to provide a one-stop solution for all NFT-related activities on Solana.

What lessons has Tensor learned from community engagement and airdrops?

Tensor's experience with their Tensorins collection and subsequent airdrops taught them valuable lessons about managing community expectations. They learned that raffle-based airdrops can lead to frustration among users who don't receive anything. For future events, they plan to consider longer-term distribution methods and clearer communication about the process. These experiences have informed their approach to community building and user rewards.

How does Tensor view the role of speculation in crypto adoption?

While acknowledging the prevalence of speculation in the crypto world, Tensor sees it as a necessary phase in the industry's development. They believe that speculation helps bootstrap builders, early customers, and users, driving interest and development in the space. However, they also recognize the need to build towards more practical and transformative use cases for blockchain technology in the long term.

What are Tensor's plans for decentralization?

Tensor is exploring paths to greater decentralization of their platform. Their goal is to make the Tensor protocol an immutable part of the Solana blockchain, with its parameters and fee settings managed by the broader Tensor ecosystem rather than a centralized team. While acknowledging the legal and technical challenges involved, they see this move towards decentralization as aligned with the broader ethos of the crypto space and potentially enhancing the platform's resilience and community involvement.

How does Tensor view the emotional aspect of NFTs?

Tensor recognizes the unique emotional and social aspects of NFTs as a key differentiator from other crypto assets. They believe that the ability of NFTs to create strong emotional connections with users, often referred to as the endowment effect, can be a powerful driver of user engagement and loyalty. This understanding informs their approach to product design and community building, aiming to leverage these emotional connections to create a more engaging and sticky platform for users.