Structuring NFT Drops
Lessons from Gas Wars and Time Wasting
This week the much anticipated SHIBOSHIs — the NFT mascots of the Shiba Inu ecosystem were dropped. The madness started a week or so earlier, when the lead developer gave the news that the long expected party would happen within the space of a week.
I bought some LEASH — the required token, and joined the telegram and discord groups, looking for news on the long expected drop. And, then there was nothing — for a while. And, more nothing — for another long while. Days passed. Rumours of the Robinhood listing floated around — when SHIBOSHI? became a mantra of the crowd.
Then the news broke that the drop would happen in the next 24 hours. And so, having had very little sleep, I was at my computer and ready to go, waiting, waiting…
After around 18 hours and good read of Peter Thiel’s Zero to One I gave up on waiting at my computer for someone else to make a decision on a product launch. I had had enough of gas price discussions and pictures of people next to cups of coffee and energy drinks. I didn’t want a Shiboshi — this was a research project I told myself, and the breaking point for me was this line...
“Finance epitomizes indefinite thinking because it’s the only way to make money when you don’t know how to create wealth” — Peter Thiel, Zero to One.
There are more creative ways to create value than to buy and hold an NFT that you paid a lot of gas for — to get your transaction prioritised, and then sell on the secondary market. (Maybe my core motivation wasn’t correct in the first place?)
There are also other ways to create community apart from the feeding frenzy that invariably comes with these types of drops — that plays to those that are relatively wealthy (on Ethereum anyway) and afford the gas costs of an oversubscribed sale that lasts only a couple of minutes. It’s this aspect that builders and crypto teams using NFTs a vehicle *need* to focus on. All projects depend on adoption for their success, and it is this adoption and the feel-goodness of it that teams need to focus on in order drive and create value.
Once the SHIBOSHI drop had ended, the price of the LEASH token predictably crashed, and people that had bought in lost a fair chunk of value, particularly if they hadn’t managed to secure an NFT.
Consider this from a business perspective: Token holders are your customers, and so they create the value in your tokens through demand. The goal has to be that there is some stable value for them in buying the token — Anyone who could read the dynamics could have put a short on the LEASH token and taken out a leveraged short position for a pretty substantial gain. The price of LEASH has crashed by about $1700 in the four days since the drop; from a peak of $3100.
This type of loss alienates community members that placed their trust in the underlying economic structure, and the rules by which the sale was conducted. The bubble in LEASH, which subsequently burst, doesn’t look good. It represents fickle value —and damages trust.
And, trust in the value and the future value of the token by the community is the basic commodity in crypto. We’re taking out social contracts with digital assets, and building digital communities, and if we don’t manage relationships carefully broken trust will just send potential customers elsewhere. It’s the same for any other business venture.
How could it be done differently?
It’s hard to know a priori how a product launch will behave — but at the very least, since crypto projects are all about economics, one has to consider the economic behaviour of agents in the system. The types of feedback loops and the way that this will affect the brand, the token values etc. etc. Software helps — and there are a number of tools that can be used for agent based simulation; to make sense of behaviour.
Community centric principles help too — I don’t think anyone would have complained if the first 1K Shiboshi’s had been airdropped to anyone that had SHIB, LEASH and BONE — the three tokens in the Shiba Inu community staked. This would have been a different way of doing things, and a major advert too. It’s all about the feel good factor — scarcity is not the same as value.
Alright — that’s my perspective. Please feel free to disagree.
About me. I work as an advisor to a number of different crypto projects. Mainly, my role is to build and simulate economic models, make sense of complexity, and draw diagrams. If you are interested in collaborating, then reach out via LinkedIN.