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Are we creating a group of NFT Elites?
As NFTs become more prevalent and projects obtain a large following, are we going to see projects shift from a fixed mint price model of launching to something a little more dynamic? All signs are pointing to the affirmative. Are we going to see mint prices rise? Maybe- there is certainly evidence of this.
Before getting into the consequences of this and understanding the trade-offs of the above questions, it may be worth establishing one example of a dynamic launch pricing model — the Dutch Auction system and its intent.
Dutch Auctions are like traditional auctions in that buyers bid the price they are willing to pay for an asset. The only difference is that an arbitrary starting bid is set to begin the auction, with the price dropping periodically by a fixed value to a predetermined lowest price. In doing this, the intent is to allow consumers/ buyers to jump in at a price point that suits them. As such, those who value (from a purely monetary standpoint- irrespective of financial factors such as wealth) the project the most will pay more than those who do not. In this way, waiting to bid results in a risk of missing out as a greater number of purchasers will jump in as the price falls.
So, to bring this back to an NFT context, a large majority of projects launch by setting a mint date and time, as well as a mint price. Sometimes this price is reduced for those who have been lucky enough to have a presale minting spot on the project. In this model of minting, users know exactly how much their NFT will cost and roughly how much they will need to pay all up (estimated due to gas cost fluctuations) to purchase an NFT, provided they are quick enough to mint. Obviously, this is far less stressful for those with a presale (mint listed) spot, prior to public sale. In this traditional minting system, all participants have a predetermined idea of cost and are able to gauge whether they can afford to participate in the lead-up to mint.
In a Dutch Auction system, especially for projects where there is a large amount of pre-release hype, project founders have the ability to set a starting price.
Are we creating a group of NFT Elites?
As NFTs become more prevalent and projects obtain a large following, are we going to see projects shift from a fixed mint price model of launching to something a little more dynamic? All signs are pointing to the affirmative. Are we going to see mint prices rise? Maybe- there is certainly evidence of this.
Before getting into the consequences of this and understanding the trade-offs of the above questions, it may be worth establishing one example of a dynamic launch pricing model — the Dutch Auction system and its intent.
Dutch Auctions are like traditional auctions in that buyers bid the price they are willing to pay for an asset. The only difference is that an arbitrary starting bid is set to begin the auction, with the price dropping periodically by a fixed value to a predetermined lowest price. In doing this, the intent is to allow consumers/ buyers to jump in at a price point that suits them. As such, those who value (from a purely monetary standpoint- irrespective of financial factors such as wealth) the project the most will pay more than those who do not. In this way, waiting to bid results in a risk of missing out as a greater number of purchasers will jump in as the price falls.
So, to bring this back to an NFT context, a large majority of projects launch by setting a mint date and time, as well as a mint price. Sometimes this price is reduced for those who have been lucky enough to have a presale minting spot on the project. In this model of minting, users know exactly how much their NFT will cost and roughly how much they will need to pay all up (estimated due to gas cost fluctuations) to purchase an NFT, provided they are quick enough to mint. Obviously, this is far less stressful for those with a presale (mint listed) spot, prior to public sale. In this traditional minting system, all participants have a predetermined idea of cost and are able to gauge whether they can afford to participate in the lead-up to mint.
In a Dutch Auction system, especially for projects where there is a large amount of pre-release hype, project founders have the ability to set a starting price.
Sure. Take for example the recently wildly popular Azuki and Zipcy’s Supernormal projects.
Azuki had a three-phase launch which included:
Dutch Auction Phase starting at 1 ETH, max 5 mint per wallet- lasted three minutes. (8700 Azukis).
Mint list sale: Price was ½ the final price of the Dutch Auction, 1 mint per person — sold remainder of supply with exception of 17 Azukis.
Public sale: cancelled as only 17 remained. Mint passes handed out to 17 community members.
Zipcy’s Supernormal had a two-phase launch including:
A presale which included 8400 Zipcys that were sold at 0.088 ETH each; and
Public sale which included 488 Zipcys that were sold by Dutch Auction starting at 2.0 ETH and trending down to 0.1 ETH over 24 hours. I understand this sold out straight away.
Note — These projects are very successful and the comments below are not directed at them specifically, rather apply more broadly to the NFT space.
With a starting price of 1 and 2 ETH (public), we are talking about a mint price of US$2,800 — $5,600 per NFT. Let that sink in for a second. For some, that’s not much, and all power to them. But think about it in a broader context with the current state of where crypto is at. We are early. We keep getting told that. There are new entrants all the time. What tends to get forgotten is that it is not just people from the wealthier nations that are invested. Yes, the space has stablecoins that are denominated in the US dollar, but given its strength against most other currencies, that amount of US dollar equivalent is an extraordinary sum of money to someone earning pesos, lira, rupees or any other currency you want to use. Using publicly available information from the World Data website, and gross national product values (also not the best numbers to use, though still roughly valid), only 25 countries have an average monthly income per person greater than US $3,000. If you look at average yearly income, that list only expands to 57 countries. Only in 57 countries are annual earnings equivalent or greater than US $3,000. So, are we being inclusive or exclusive at this stage?
The counter argument is that value is decided by the free market. If there is enough demand for it at a certain price, then a Dutch Auction is an effective form of price discovery. Some would even argue that true price discovery should start at a ridiculously high value, especially where we are seeing mints sell out at the very top of the Dutch Auction pricing scale. If we are selling out at 1 and 2 ETH for the aforementioned projects, and seeing a subsequent pump in the price immediately upon minting, it could be argued that the true market value was not set upon auction, but rather that it was set after minting — i.e., people would have paid more upfront had the auction started higher. I am not 100% sure I subscribe to this theory in its entirety, though the point has merit. One concern is what the market looks like currently (who are the participants and where do they come from?). And the second is digital scarcity — we have roughly 3.9% of the world population involved in crypto (that’s about 308 million people and growing) and an increasing share involved in NFTs. For a hyped 10,000 PFP project, I can see why a high mint price may be chosen. I just believe that if you have the demand, the project will take off even if you minted for an accessible price anyway.
Another argument for Dutch Auctions or high mint prices is that it rewards those who took risks to begin with (i.e., those who were in this space pre-2018, pre-2013, etc.) and held onto their bags are the ones who are now reaping the rewards of their actions. While true, does a lower mint price discriminate against them? Maybe there will be more competition for minting at a lower price point, though there will also be opportunities to buy in on secondary if one does miss out. For those unable to afford 1 -2 ETH, sure, they could buy on secondary if the price falls, but we also know that that is no guarantee.
Further, if we look at it from the perspective of the project team — if they went for a traditional mint at the lower end of their price range, their initial take would be lower, though normal price discovery on the secondary market would result in plenty of market activity and royalties over time. Some would argue that high prices allow for all of a project’s roadmap to be achieved. I would push back on that way of thinking.
Even if a roadmap requires a lot of capital, the entire roadmap does not need to be achieved upon sell out. Project founders have the ability to scale and the roadmap does not need to be achieved right away. Setting goals is great, but what happens after you meet them on minting out? Obviously, the answer is most will set a new roadmap. A lot of projects these days are releasing roadmaps that have targets up to 100% sold. Beyond that, there are often generic goals, catchphrases (metaverse, merch, etc.) and a loose vision. I’m all for developing a plan to react to a situation, but why wouldn’t a team make a plan for success? Assume sell out, assume you’re going to have traction with NFT people. Think about post-mint goals. Have specific targets. But back to the original point — does everything have to be achieved immediately upon sell out with the capital raised at that stage? And if so, who will be able to realistically participate in a mint? It is definitely a balancing act.
One thing we know for certain is that good projects will make the money they do not make at mint back eventually. They may also foster a community that is truly bought in. If you make access available to a great number of participants, there is a greater chance of having more truly “loyal” or “community minded” individuals within a project’s holder base. In simple terms, if you have 10 people to choose from, taken randomly from everyone on earth to join your 5-person basketball team, versus 1000 random people to choose from, you would take the 1000-person option as you’ve got more chance of finding some absolute ballers. Surely that is the same for NFT projects. Make it affordable to more, and you may get to reward a more diverse group of the community that you have worked tirelessly to build .
I would contend that if we are already involved in the crypto space, we have worked hard or are extremely fortunate to be here. I would like to think that we do not take that for granted. Secondly, a Dutch Auction system, even where it is open to the public may be a good way to raise funds for a project team, with participants entering at a price point they are comfortable with (provided there is supply). Where supply does not exist, such as hyped projects (deservedly or otherwise), we find participants end up being those who are wealthy enough to do so. And before I continue, I acknowledge that these participants may also include those who have taken risks, worked hard or gotten lucky to get to where they are financially. There is no point taking that away.
But what about accessibility to those who want to support a project but cannot afford to shell out 1 or 2 (or more) ETH? Are we prepared to just exclude them? Is this where this space is headed? Are the wealthy going to keep getting wealthier? Is crypto (but more so the NFT space) headed to a point where wealth means more than active participation, community building, or diversity in project holders? These are all tough questions to answer, and I do not have answers to them.
There has been Twitter chatter about mint prices recently, with one Dutch Auction starting at 11.1 ETH and many new projects setting mint prices above 0.1 ETH, with little real utility. The affordability topic is probably not going away any time soon, so I may have more to say in the future. We really need to start thinking about where the NFT space is headed. Are we headed towards an inclusive space for all participants (and by all, I mean everyone, not just those that have traditional wealth) or are we prepared to sacrifice on inclusivity to cater only to the financially well-off and create a small group of NFT Elites?
Finally — if all my acknowledgements above are not enough- let me be clear: I have no problems with wealthy participants of the crypto space. The comments above about affordability and accessibility rather than a swipe at money making practices. Just my viewpoint on a topic that I find important. There are many aspects of project delivery that could change over time. I hope some of them do.
Do you agree / disagree with the above? What have I missed? (Plenty- I am sure). I would love to hear from you. I can be reached on Twitter @cryptobear55 or via the comments below. Thank you.
Sure. Take for example the recently wildly popular Azuki and Zipcy’s Supernormal projects.
Azuki had a three-phase launch which included:
Dutch Auction Phase starting at 1 ETH, max 5 mint per wallet- lasted three minutes. (8700 Azukis).
Mint list sale: Price was ½ the final price of the Dutch Auction, 1 mint per person — sold remainder of supply with exception of 17 Azukis.
Public sale: cancelled as only 17 remained. Mint passes handed out to 17 community members.
Zipcy’s Supernormal had a two-phase launch including:
A presale which included 8400 Zipcys that were sold at 0.088 ETH each; and
Public sale which included 488 Zipcys that were sold by Dutch Auction starting at 2.0 ETH and trending down to 0.1 ETH over 24 hours. I understand this sold out straight away.
Note — These projects are very successful and the comments below are not directed at them specifically, rather apply more broadly to the NFT space.
With a starting price of 1 and 2 ETH (public), we are talking about a mint price of US$2,800 — $5,600 per NFT. Let that sink in for a second. For some, that’s not much, and all power to them. But think about it in a broader context with the current state of where crypto is at. We are early. We keep getting told that. There are new entrants all the time. What tends to get forgotten is that it is not just people from the wealthier nations that are invested. Yes, the space has stablecoins that are denominated in the US dollar, but given its strength against most other currencies, that amount of US dollar equivalent is an extraordinary sum of money to someone earning pesos, lira, rupees or any other currency you want to use. Using publicly available information from the World Data website, and gross national product values (also not the best numbers to use, though still roughly valid), only 25 countries have an average monthly income per person greater than US $3,000. If you look at average yearly income, that list only expands to 57 countries. Only in 57 countries are annual earnings equivalent or greater than US $3,000. So, are we being inclusive or exclusive at this stage?
The counter argument is that value is decided by the free market. If there is enough demand for it at a certain price, then a Dutch Auction is an effective form of price discovery. Some would even argue that true price discovery should start at a ridiculously high value, especially where we are seeing mints sell out at the very top of the Dutch Auction pricing scale. If we are selling out at 1 and 2 ETH for the aforementioned projects, and seeing a subsequent pump in the price immediately upon minting, it could be argued that the true market value was not set upon auction, but rather that it was set after minting — i.e., people would have paid more upfront had the auction started higher. I am not 100% sure I subscribe to this theory in its entirety, though the point has merit. One concern is what the market looks like currently (who are the participants and where do they come from?). And the second is digital scarcity — we have roughly 3.9% of the world population involved in crypto (that’s about 308 million people and growing) and an increasing share involved in NFTs. For a hyped 10,000 PFP project, I can see why a high mint price may be chosen. I just believe that if you have the demand, the project will take off even if you minted for an accessible price anyway.
Another argument for Dutch Auctions or high mint prices is that it rewards those who took risks to begin with (i.e., those who were in this space pre-2018, pre-2013, etc.) and held onto their bags are the ones who are now reaping the rewards of their actions. While true, does a lower mint price discriminate against them? Maybe there will be more competition for minting at a lower price point, though there will also be opportunities to buy in on secondary if one does miss out. For those unable to afford 1 -2 ETH, sure, they could buy on secondary if the price falls, but we also know that that is no guarantee.
Further, if we look at it from the perspective of the project team — if they went for a traditional mint at the lower end of their price range, their initial take would be lower, though normal price discovery on the secondary market would result in plenty of market activity and royalties over time. Some would argue that high prices allow for all of a project’s roadmap to be achieved. I would push back on that way of thinking.
Even if a roadmap requires a lot of capital, the entire roadmap does not need to be achieved upon sell out. Project founders have the ability to scale and the roadmap does not need to be achieved right away. Setting goals is great, but what happens after you meet them on minting out? Obviously, the answer is most will set a new roadmap. A lot of projects these days are releasing roadmaps that have targets up to 100% sold. Beyond that, there are often generic goals, catchphrases (metaverse, merch, etc.) and a loose vision. I’m all for developing a plan to react to a situation, but why wouldn’t a team make a plan for success? Assume sell out, assume you’re going to have traction with NFT people. Think about post-mint goals. Have specific targets. But back to the original point — does everything have to be achieved immediately upon sell out with the capital raised at that stage? And if so, who will be able to realistically participate in a mint? It is definitely a balancing act.
One thing we know for certain is that good projects will make the money they do not make at mint back eventually. They may also foster a community that is truly bought in. If you make access available to a great number of participants, there is a greater chance of having more truly “loyal” or “community minded” individuals within a project’s holder base. In simple terms, if you have 10 people to choose from, taken randomly from everyone on earth to join your 5-person basketball team, versus 1000 random people to choose from, you would take the 1000-person option as you’ve got more chance of finding some absolute ballers. Surely that is the same for NFT projects. Make it affordable to more, and you may get to reward a more diverse group of the community that you have worked tirelessly to build .
I would contend that if we are already involved in the crypto space, we have worked hard or are extremely fortunate to be here. I would like to think that we do not take that for granted. Secondly, a Dutch Auction system, even where it is open to the public may be a good way to raise funds for a project team, with participants entering at a price point they are comfortable with (provided there is supply). Where supply does not exist, such as hyped projects (deservedly or otherwise), we find participants end up being those who are wealthy enough to do so. And before I continue, I acknowledge that these participants may also include those who have taken risks, worked hard or gotten lucky to get to where they are financially. There is no point taking that away.
But what about accessibility to those who want to support a project but cannot afford to shell out 1 or 2 (or more) ETH? Are we prepared to just exclude them? Is this where this space is headed? Are the wealthy going to keep getting wealthier? Is crypto (but more so the NFT space) headed to a point where wealth means more than active participation, community building, or diversity in project holders? These are all tough questions to answer, and I do not have answers to them.
There has been Twitter chatter about mint prices recently, with one Dutch Auction starting at 11.1 ETH and many new projects setting mint prices above 0.1 ETH, with little real utility. The affordability topic is probably not going away any time soon, so I may have more to say in the future. We really need to start thinking about where the NFT space is headed. Are we headed towards an inclusive space for all participants (and by all, I mean everyone, not just those that have traditional wealth) or are we prepared to sacrifice on inclusivity to cater only to the financially well-off and create a small group of NFT Elites?
Finally — if all my acknowledgements above are not enough- let me be clear: I have no problems with wealthy participants of the crypto space. The comments above about affordability and accessibility rather than a swipe at money making practices. Just my viewpoint on a topic that I find important. There are many aspects of project delivery that could change over time. I hope some of them do.
Do you agree / disagree with the above? What have I missed? (Plenty- I am sure). I would love to hear from you. I can be reached on Twitter @cryptobear55 or via the comments below. Thank you.
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