One reason it has kept my attention for such a sustained period of time is being a participant in the “industry” feels like you’re playing a massive multiplayer online money game (mmOMG?). Everyday magic internet money is flying around, up for grabs, and the dopamine pulls you in.

After years of doing the thing: reading blog posts & technical white papers, trading coins and NFTs, making money and losing a lot of it, 2x-ing my way through 100s of podcasts, and scrolling through Discord and Twitter for an eternity… I want to compile some of the lessons I’ve learned about the trading & speculation side of crypto. The mission here is to collect my own thoughts and pay it forward.

I have eight points. Let’s get it.

1.    Everything in crypto is a social token

2.    All short and medium-term price action is driven by narratives

3. The main way to make money is by being early to new themes

4.    Markets are made up of different types of players, and money flows based on how they behave

5.    Principles are necessary when allocating money

6.    Do your own research

7.    Let things settle after major price swings

8.    The game is always live

Everything in crypto is a social token. Put differently, all tokens are a proxy for human attention, where prices go up and down based on how many people are following a given project at a given time. This means crypto speculation is dominantly a social activity. All we’re doing is trading derivatives of people’s attention, whether that’s in the form of coins or NFTs. One moment Solana has the most mindshare, the next it’s on to another alt L1 blockchain. Another week it’s Bored Ape Yacht Club blowing up the internet for a bit, then it’s the Moonbirds NFT mint. And so on.

All short and medium-term price action is driven by narratives. It’s people calling for ETH to go to $10K because of the merge, or CryptoPunks pumping after an auction house announces they’ll be selling some. It’s metaverse coins like Decentraland and Sandbox pumping after Facebook rebranded to Meta. And many other such cases. There is a lot of interesting technical innovation happening in crypto, but that only matters insofar as good technology is a good ingredient for a good story, and it’s the story that drives price action, not the tech.

The main way to make money is by being early to new themes. The best capital allocators take positions in something that is non-obvious that eventually becomes consensus: Bitcoin, Ethereum, DeFi, NFTs, play-to-earn, memecoins (whether of the food or dog variety), DAOs… at some point all these categories were weird things that were never going to happen, until they did. The challenge is figuring out what the new narrative might be, then determining the best things to bet on in those verticals. 

Markets are made up of different types of players, and money flows based on how they behave. Traders vs. investors. Retail vs. institutions. Tourists vs. locals. Group chat A vs. group chat B. Each of these constituents could be buying or selling some set of tokens over some time horizon for different reasons. Making sense of who is doing what, when and why can give you an edge. One consistent example of this is how NFT markets often go through mini bull runs independent of larger crypto sentiment because it’s a mostly retail driven game.

Principles are necessary when allocating money. If you don’t create rules for your market participation, it’s easy to end up buying and selling stuff based on fear, greed, or other emotions. To guard against the flaws in human psychology, it can be helpful to reflect on what you're buying, why, with what size, over what time horizon, and with what stops i.e. at which points profits or losses will be taken, depending on if an idea goes well or not. Questions like these give constraints to allocating money. They turn the open-ended game of “always on” markets into a finite game with rules, which helps you manage your risk.

Do your own research. Everyone in crypto is shilling something & wants you to buy their bags. Instead of taking advice and trading ideas from social media, then getting dumped on… do your own thinking, form your own opinions, and place bets accordingly. There’s that Katy Perry lyric, “I stood for nothing, I fell for everything.” Most retail people in crypto act like that, myself included. So, before taking a position think: what’s the game with this token? Who are the players? Who buys higher? When and why? If you don’t have solid answers for these things, you’ll have zero conviction when prices move (up or down).

Let things settle after major price swings.  If you make money, what tends to happen is you quickly yolo those funds into something else. This behavior is often called the house wealth effect. TLDR: you don’t relate to money you recently earned the same way you relate to money you’ve earned in the past. It’s best to chill, sit on your funds in stablecoins for a week, then make new decisions after getting some space. This applies on the downside too. If you lose a lot of money, it can be tempting to try and revenge trade and make it all back using leverage, shitcoins, or other means. In my experience, the best play is to sit on your hands for a bit, reflect on what happened, and reassess.

Finally, the game is always live. This is a good note to end on for two reasons. First, it’s encouraging to know that no matter what your past experiences have been with markets, they don’t define your future participation. There are always other opportunities. No matter how badly some trade went wrong, you can always engage again, so long as you survive. Second, and quite literally, the online crypto casino never closes. It’s ok to take breaks and step away for a season because the chaos will be here when you get back. 

Shout out to Nani, Hype, Emmy, Tamagoyaki, and Jack, for feedback and review.

TLDR:

Perps, or “perpetual swaps” are the largest market in crypto in terms of volume (over spot, options, or anything else).

NFTs are a relatively new sub-category of crypto, almost exclusively driven by spot trading with mostly retail money in play.

Our contention is that as the NFT space matures, we will see significant adoption of perps for NFTs, and in the process culture will become a deeply liquid asset class. For an early example of this, Milady perp volume was higher than spot volume in early January 2022.

Let’s get into it. In short, perps offer a better NFT trading experience in terms of friction, leverage, and sizing. We’ll look at each in turn.

First, on friction. Normally, when you trade an NFT you have to buy it from a marketplace like Blur or OpenSea. With an NFT perp platform there is no underlying NFT to deal with, so going into and out of a position in a given project is more straightforward, cheaper (platforms exist on L2s with lower fees), and capital efficient (no royalties).

Second, on leverage. Before NFT perpetuals, traders would be limited to getting leverage from their spot assets on a traditional exchange, or borrowing against their NFTs on platforms like NFTfi and BendDAO, before they could ape additional capital into their spot NFT collection of choice. NFT perpetual platforms offer a more seamless experience. They take collateral in many currencies and offer a direct environment/platform to use those borrowed funds. So, for example, you could take a position in the NFT market using ETH as collateral, then settle in ETH when you exit your position. Clean.

Third, on sizing. Perps allow anyone to get exposure to any NFT collection at any size, whether that is trading 0.05 or 11.69 times the value of a given NFT e.g. a Bored Ape. This allows small holders to take positions in the NFT markets they otherwise couldn’t. It also allows larger players to trade in size without instantly impacting the spot floor price by sweeping NFTs on a marketplace.

While some people in the industry make the case that fractionalization of NFTs offers similar benefits for market participants to those we have suggested above, in our view, perps are superior. This comes down to two points: fungibility and capital efficiency. 

On fungibility. One fractionalized CryptoPunk pool is not like another, and it’s impossible to trade more size than is currently fractionalized. 

On capital efficiency. Someone has to lock up an underlying NFT for fractionalization to work, which is an inefficient use of capital.

Side note: we’re bullish on fractionalization as well, but people want fractionalized NFTs when their underlying goal is about identity, belonging, collecting, and actual ownership vs. trading.

Let’s address two counter points before wrapping up. First, a major concern people have with NFT perpetuals is that the underlying price feeds the perps run on could be manipulated in an “oracle attack.” 

Imagine a scenario where an entity has a large amount of NFTs from a certain collection. They might take a position in perps, then flood the spot market with their holdings, which in turn manipulates the price of the perp in a way that is favorable to them. This is a fair concern, and while there are a variety of design decisions that different teams will make to address this and ensure prices are fair, we encourage everyone to research the oracles used on platforms before trading on them.

The other critique people make is that NFT participants aren’t sophisticated enough to trade perps, so there’s no point in offering them. In short, we just think that’s wrong and we’re excited to see many new entrants into the category over the next 12-18 months. Today, the early mover in the industry is NFTPerp, which offers an accessible way to experiment with this new sort of trading. Check it out here. 

Disclaimer: we’re both angel investors in the platform.

https://twitter.com/hype_eth/status/1613673416564801537

BUT, a lot of those same people I know are bearish on the current stable of pfp projects we see in the OpenSea top 500. You’ll often hear folks say that 99% of them will die, it’s all vaporware, most of the projects that find true product market fit will come later, and so on.

While there’s definitely some scammy and junior varsity stuff out there, I see about 30-40 projects that have thoughtful founders, art that appeals to a particular niche/subculture, and a lane to move forward. Recently, I’ve been obsessed with the idea that they should explore moving forward together. Enter the idea of a federation.

If the higher quality, medium & small cap pfp projects joined forces in a way that was collaborative but still respected each project's autonomy, wouldn’t that be a better “decentralized Disney” than Yuga or Moonbirds just building a crypto-flavored multiverse?

The federation could start small like creating a unified airdrop list for all wallets that hold an NFT from a federation project, or spinning up a federation GitHub that aggregates NFT tech and design best practices. There is also the potential a federation could pool resources to tackle more ambitious projects than a single team would have bandwidth for.

Misc. ideas include:

• Create a federation marketplace built on top of Reservoir that either has zero fees, sets aside fees for federation projects, or distributes fees to projects based on their respective trading volume

• Facilitate a Ready Player 1 type contest across the NFT universe with each team offering some riddles/puzzles, POAPs, and prizes

• Create a basket of NFTs from each constituent project that can then be fractionalized as a way to standardize exposure to mid-cap NFTs

• Host a federation event at a major conference like NFT NYC

There are a lot more possibilities, from shared merch to educational content, but let’s stop there for now. TLDR: there is value in projects banding together. You aggregate attention, and in so doing each project expands its share of the attention pie, sort of how the Marvel Cinematic Universe works… no one would have heard of Antman if it weren’t for The Avengers. Put another way, a federation would create a ‘rising tide that lifts all boats’ scenario for brand awareness where all projects get more exposure than they otherwise would on their own.

I could imagine there being some prerequisites to belong in the federation, maybe including NFT holder count, historical volume, community activity, team credibility, etc. But however “belonging” is defined, if a bunch of quality projects came together they could create something that is more than the sum of its parts.

On to the main counterpoint: Why would people want to collaborate, aren’t these things competitive?

I think you just start small and work on things that are net positive for all involved. Then relationships form, creativity simmers, and things can happen. Politics nerd me says this could be similar to how the European Union started with something small as well: a set of rules several countries agreed to around coal and steel called the European Coal and Steel Community. After that organization formed, time went on, more and more collaboration happened, and voila, the European Union… its problems notwithstanding.

So, a pfp federation. Crypto-native communities working to push the space forward together. In some way doesn’t this just feel obvious? I would love to hear what people think, especially if you’re connected to a pfp project as a team member, advisor, or active community member. After launching Good Minds, our team has been playing with the idea of spending money and dev time to collaborate on some different projects, so we’re open to being instigators here. If this sounds interesting, please free free to reach out to me or the team account on Twitter.

Thanks to 0xtygra for feedback and review.

NFTs have come a long way in the last 18 months. We’ve gone from little groups geeking out in the CryptoPunks and Art Blocks Discord servers to a fledgling industry that has spawned 9- or 10-figure brands including Bored Ape Yacht Club, RTFKT, Doodles, and of course [my bags]. On one hand, we’re really not early anymore. SNL did a skit on NFTs last year. On the other hand, we’re only starting to see the potential this subset of crypto has beyond speculation, i.e. across categories like art, gaming, social clubs, lifestyle brands, and so on.

After following hundreds of NFT sets over the past couple of years, the 5 of us have decided to try and create one ourselves, specifically as a way to press into topics like generative art, digital identity, and internet-native community building. Enter Good Minds, our indie & art-centric NFT collectibles project that is starting with a small multi-character profile picture set. Our intention with Good Minds is to go back to basics. We want to take lessons learned from following the space, add our creativity to the mix, release some fun art into the world, and form a minimum viable community around that art.

Here are the key details:

-Good Minds will mint in early July and include 6000 NFTs priced at 0.03 ETH a pop, regardless of market conditions.

-The art will have a CC0 license (creative commons) and is free to be remixed and used in other projects.

-We have three main characters, each with unique generative traits, along with some 1/1s in the set, based on characters Stefan has been drawing since art school in 2014. The breakdown will be: 3000 breads, 2000 vases, and 1000 TVs (see sample images further down in this post).

-We’re planning to raffle 500 presale spots via PREMINT, with the remaining NFTs available for anyone to purchase. Presale winners will have several hours of lead time to mint their NFTs on mint day before the set opens up to the public.

-We will use Chainlink VRF (Verifiable Random Function) to generate a provably fair and verifiable random number that helps ensure a fair minting process for all participants.

-The team’s deployer address will mint 300 NFTs (5% of the supply) in advance of the public: the majority of these will be staked in NFTX as soon as possible to create permanent liquidity for the project, and the remaining outputs will be used for community building initiatives over time.

-Team members plan on participating in the mint as individuals but will not be buying any NFTs on the secondary market for the first 72 hours post-reveal. This is to make sure we’re not unfairly buying rare outputs cheaply before market participants have a chance to look at the set.

-If we mint out, we will have taken in 180 ETH total. This will be split among taxes, operating capital, charity, and community initiatives. Some additional specificity is below.

-10% of the mint will go to charity. Token holders will be able to choose which one(s) from several options, namely charities that have an on-chain presence and have been vetted by the team.

-We will also set aside funds to support community initiatives modelled loosely on the approach used by NounsDAO. We intend to fund things like bursaries for artists, experiments that leverage the Good Minds CC0 licensing, among other things.

-Royalties on all secondary sales will be 5% + marketplace fees.

Now, typically, NFT projects will lay out a road map as a way to offer potential minters a reason why they should make a purchase. We want to move away from that concept toward articulating a set of values which shape our intentions for Good Minds. Laying out some guiding principles like this…

1. gives people a better sense of whether this is a project and community they would like to join long term.

2. gives us greater flexibility with what we do going forward versus committing to ideas for hype-only reasons based on what happens to be hot in Q2 2022.

TLDR: yes, we have ideas for Good Minds after the mint, no we’re not building a game in Sandbox and there is no Good Minds metaverse planned. Instead, Good Minds should be seen as an indie NFT project. Utility for holders is the right to enjoy the art we’ve spent time curating along with the community layered on top of that art. That’s it. What we do moving forward is intended to be experimental and we invite people to join us in that.

Ok, so what are the project’s values? They are simply: art, crypto, and people.

Art. We love art and artists. Our intention with Good Minds is to be an NFT collection that supports creativity in all its forms, both among our holders and with what we do as a team.

Crypto. We are unapologetically excited about crypto, both the tech and the culture. With Good Minds we want to create a meaningfully crypto-native project, starting with a trusty ERC-721A contract, Chainlink VRF, some NFTX liquidity, and CC0 licensing. We plan on regularly sharing our reflections on the design decisions we make as we go.

People.* *The base layer of the NFT industry is real people. We would like to see Good Minds be a project that facilitates people making lasting connections with each other based on a common interest in the industry, whether that means someone is new to crypto or they’re an OG.

Everything we do going forward will be built in light of these values. If you find that you align with this approach, if you have any questions about Good Minds broadly, or if you want to offer us some constructive feedback, please check out our website, follow our Twitter account, and reach out to say hi! DMs open. We’re excited to share more in the coming weeks.

A final note. We’ve decided not to launch a Discord server (at least initially) for two reasons:

1. Everyone in crypto is already on too many servers and people usually move to block/mute new ones.

2. Most community formation happens on Twitter & in group DMs that often become smaller + private Discord servers anyway.

Our plan is to have a Discord-less trial period, focus on Twitter-based community building, see how it goes, and in the event we do evolve from there in a different direction (whether that’s Discord or something else) more information will be made public when the time comes.

But, up first, the mint!

As the non-fungible token (NFT) universe grows — both on Ethereum and across different blockchains — I think CryptoPunks will capture more value than any other set of digital art or collectibles. Before I explore why I think this is the case let’s define some terms.

Non-fungible tokens are a type of crypto asset that represent unique (or “non-fungible”) digital goods like pieces of art or video game items. As with Bitcoin or Ether, these crypto-assets are held in a non-custodial and censorship resistant manner where proof of ownership exists on public blockchains.

CryptoPunks are a set of 10,000 digital characters that have a variety of attributes with different levels of rarity based on their type (alien, ape, zombie) and attributes like tiaras, luxurious beards, hoodies, and so on. As one of the original NFT collectibles, punks were a seminal step in the development of the ERC-721 standard, which is the “file type” most NFT projects use today.

Initially, it may seem crazy that there are people willing to pay big money for what critics say are just PNG files of pixel art. If someone likes one of these punks, can’t they just right click and save the image? While I understand people who hold this view, it misses some important nuance around how art is valued. Let’s consider “real” art for a minute as a comparison.

Paintings by Vincent van Gogh are expensive and many of his pieces have sold for millions of dollars over the past decade. At the same time, I grew up with a printed copy of one of van Gogh’s Sunflowers hanging above my kitchen table… and even though I think it’s beautiful, I wouldn’t be able to sell it. It’s worthless, it’s a print.

What this shows is fine art has value — at least financially speaking — based on verifiable ownership of an original, not because of aesthetic beauty alone. If someone owns an original work by a famous artist, they gain a level of status. Wealthy people store value in fine art based on the assumption that this will hold true. That status persists. This is in part why so much art sits in freeports around the world and gets traded without the owners ever bothering to go see the pieces in person.

Ok, back to CryptoPunks. What is novel about CryptoPunks is they are among the first pieces of digital art on Ethereum that have a built in means of verifying unique ownership. This is done through cryptographic hashing such that a wallet address on Ethereum can have ownership rights over a CryptoPunk in a secure manner. As people have caught on to this, there has been a surge of interest in buying punks. In the last quarter of 2020 and the first few months of 2021 there have been tens of millions of dollars in sales volume surrounding CryptoPunks and a few purchases of over one million dollars each for the rarest ones. See below for a visual of the price action over the past three months from nonfungible.com:

Several people have laid out investment theses around why punks will hold value over time. A good one to read if you’re interested in exploring this further can be found here. To me, the value proposition comes down to two things. Punks as a store of value and punks as a reflexive asset with a great narrative. On the store of value side, there are only 10,000 punks and with all the new money in crypto there aren’t enough to go around. It’s a supply-side crisis. On the narrative side, punks have a great story: they had a fair launch so anyone could claim them for free back in the day, the founders behind the project are brilliant, they’re the rookie card of NFTs, etc.

While some people see the current run up in punk prices as a bubble — and it may be, in part — I see it more as the repricing of an asset that many people (myself included) missed for a long time. Further, I expect to see the market cap of punks combined continue to grow significantly in the next five years, potentially even in proportion to the size of the NFT market as a whole.

Here’s the theory: NFTs will be massive for the digital art and collectibles category. There will be billions of them. As this growth happens, certain NFTs will capture a majority of the value and punks are a good candidate to capture that value because capital will flow into them from both large and small investors.

Let’s look at small collectors first. As new people come into the crypto space they tend to want to collect what is already valuable… and there’s nothing more valuable than punks: they’re persistent, they have a great community, they are used by important people as Twitter and Discord profile pictures, and so on.

While punks are too pricey for everyday collectors — the lowest one on offer at the time of writing is $26,000 or 13.5 ETH — projects like NFTX and Niftex have made it possible for smallholders to participate. Both of those protocols use different mechanics to allow people to own a small portion of a punk, either through a set of index funds backed by real punks (NFTX) or fractional ownership of a single punk (Niftex). Together, these protocols allow ownership of punks to disperse in a way that’s never been true of any high-end collectible category. And there are liquid secondary markets for these tokens too.

While value will pour into punks from normal collectors, wealthy NFT collectors will cause a surge in punk market cap as well. When I think of wealthy NFT collectors, I break them into two categories. There’s non-crypto money and crypto-native money.

The wealthy new investors will come into NFTs from outside crypto and want what is the most highly valued asset. Punks. For example, last week I was in the CryptoPunks Discord, which has a bot that reports on recent punk sales, and I saw a new Ethereum wallet drop a million dollars on a dozen punks in a single hour. How many people can do that before the prices go bananas?

Then there’s the crypto-native people who denominate a portion of their net worth in punks. What does that even mean? In the same way that a lot of people who are OGs in Bitcoin play with and trade altcoins then take those gains back into Bitcoin… OG NFT collectors dabble in other NFT projects and when they make money there, they often take those gains back to punks as their numéraire (by buying more or rarer punks with that capital). As the NFT category expands, these people will be taking more and more profit back into punks. Again, punk numbers go up.

Ultimately then, with capital flowing in both from the bottom (everyday investors) and the top (high net worth people) punks will be bursting at the seams with value capture. Over the coming years, we’re going to see some fat punks.

Credit to the many people whose thinking directly influenced this essay, specifically Aaron Wright, Scott Lewis, Alex Gausman, Snowfro, ddaavvee, gmoney, and JUSTIN.

End Note: 100% of the proceeds from The Fat CryptoPunks Thesis will be donated to charity though Mirror’s “Split” functionality: 25% on-chain to GiveWell’s Maximum Impact Fund, 25% on-chain to SaveArtSpace, 25% on-chain to Coin Center, and 25% off-chain through me to charities in British Columbia.

split://0x2cB6f19F64e76751DeFc6462852D4728CB0FDDda?network=mainnet