NFTY NEWS [October 16, 2018]

NFTY NEWS is a weekly newsletter covering the latest developments of non-fungible tokens (NFTs) in the blockchain space – collectibles, games, new platforms, and much more. NFTY NEWS is created by contributor Brian Flynn and adapted from his Medium page. For more information on NFTs, check out Brian’s reading list to get you up to speed on crypto digital assets.

NFTY News #23 — Recap of thoughts from SF Blockchain Week

SFBlockchainWeek is a wrap! I’m going to cover some of my thoughts from the past two weeks including diverging non-fungible token narratives, financial primitives in blockchain gamin and NFTs that are used for signaling purposes.

Financial Cryptogames & The Common Resource Dilemma

1. Non-Fungible Token Narratives

The 3 different use cases that came from the NFTSummit:

• Collective Maximalism — We never truly owned our digital goods, but now we can by creating authentic digital scarcity. The biggest problem with collecting digital goods was trading and sending — there wasn’t an easy way to give a digital good to a friend. Alex Kern from Coinbase created gifty at ETHSF which allows users to send & receive non-fungible tokens through a URL and SMS. Now we can trade our unique digital goods easily just like traditional collectibles.
• Utility Maximalism — We create digital objects, digital materials, or ideas, and can share them with other individuals and creators to make them more valuable. But what ends up driving value for digital goods? It’s a really difficult question to answer.

• Decentralized Finance — We can use digital goods for collateral, wrap financial instruments to trade as one token, and construct entire portfolios of tokens under a single token. We can even create fungibility of a non-fungible token to give investors more exposure to non-fungible assets.Soon, maybe we’ll be able to buy a free-trial starter pack with a set of NFTs to try out different cryptogames using Set Protocol and Dharma.

My takeaway from all of it: Collective Maximalism alone is super niche, but will appeal to collectors. It’s almost impossible to create a moat using utility maximalism (why should we use your digital object versus my digital object?) and the cost to create a new one is nearly zero-cost. Decentralized Finance is confusing for consumers, but could work when paired with a fun, game-like mechanics.

2. NFTs start off as a blank piece of paper.

One idea for NFTs that came up during the conference and that I’ve been thinking about recently is the blank piece of paper metaphor. Once they’re created, nothing really distinguishes one from another. The rules for how these digital objects are brought into new instances are largely defined by the creator themselves rather than the community, creating the majority of incentives for those who create the original piece of work. Since the digital objects are just a blank piece of paper, the opportunity cost to contribute to the existing piece of paper drastically outweighs the cost to create a new piece of paper.

The current model of selling pieces of paper (digital asset pre-sales) is becoming outdated. We don’t want to follow on someone else’s rules. We want to create our own puzzle, as opposed to being just a piece of the puzzle for others.

Creators or Developers should benefit by taking tiny slices of the pie but leave the majority of economic opportunity up to the contributors of the platform.

Things like secondary-fee revenue (SuperRare’s model) should outweigh pre-sale revenue, since secondary sales reward contributors and the network more than the developers. Developers can impose Harberger Taxes if the opportunity cost to hold a digital asset is greater than liquidating.

Developers and creators want us to use their gold coins to create our products, similar to how the supply chain of the real-world works.

2. Gaming with financial primitives built on top enables *new* behaviors

Games are digitally native, therefore, we can build an entire stream of financial protocols on top of games.

Tony Sheng had an excellent post on the grassroots of cryptogames describing that if cryptogames were to drive mainstream adoption, they’ll be uniquely enabled by crypto.

New incentive mechanisms will enable different forms of coordination to the likes of FOMO3D. Users will form groups in games not for social reasons but for additional economic incentives. We’ll likely see a prediction market built upon successful cryptogames and dApps because of high liquidity within the network, shifting user behaviors from maximizing gameplay to maximizing productivity within the game.

3. “Signaling” NFTs and Targeted Airdrops

One of the more interesting use cases that has been emerging is the idea of badges as a means signaling that you’re a member of a specific network. This doesn’t work well with fungible tokens because users associate fungible tokens with liquidity and profit opportunity.

The problem, as mentioned before, is that the cost to fork an open protocol is low, so users won’t adopt a universal signaling system unless there’s a clear platform moat established. If networks could agree on an open signaling standard that contains non-transferability, users would be able to accrue reputation badges in the form of non-fungible tokens for completing certain tasks.

New networks could then bootstrap their communities by filtering badges and airdropping their token on a specific set of users. Users would obtain digital goods based upon what they own as opposed to where they’ve been.

What are the problems with this? I would love to hear some feedback from the community on this.

New NFTY News Website is available here!

Check out all the previous editions of the NFTY News and past research on NFTs.

If you are working on creative use cases, or working on trying to get more people into crypto and reaching end users using non-fungible tokens, I would love to talk about how I can help. Reach out to me on twitter @flynnjamm, my DMs are always open.