by BTCdayu. twitter.com/btcdayu

Translator comments are italicized and [bracketed]. All mistakes are the translator’s.

A challenge has been issued to OpenSea by X2Y2, which came out of beta a few days ago. However, to begin the vampiric attack, we would have NFT staking lead the charge. [Staking NFTs: Listing items on X2Y2 for token rewards]

The rewards from NFT staking is expected to bring listings of high quality NFTs. As of this date [February 18th], there have been over 100 listings each of Azuki and MAYC NFTs; but the platform being in its infancy, it is not surprising that there has been some confusion around the staking mechanism, its rewards and the calculation of said rewards.

Notwithstanding the hubbub surrounding X2Y2’s release, users who listed NFTs have already received the first batch of rewards; and they have been plentiful, with Weirdo Ghost Gang listings (floor price 0.5 ETH) returning as much as 800 X2Y2 tokens (worth $2400 at $3 per token).

There is a 3-day time limit before listing rewards expire, with listed items accounted for every 3 days. [The number of NFTs you listed and considered for rewards is updated every 3 days.] The details of this mechanism will be explained below but the gist of it is to have users list quality NFTs at realistic marketable prices to have a high chance of resulting in actual sales.

I am still testing but my guess is that this somewhat resembles creep farming in MOBAs; generous staking rewards to listers, encouraging floor sweeping, real trading and obtaining rewards in the process (the probability of an NFT being sold, P_NFT has not been revealed, I am still waiting for my test listings’ results).

The ecosystem flourishes when NFT staking brings real trading volume and this feeds back into the X2Y2 token; 100% of transaction fees are distributed to token stakers (currently 17M tokens staked).

Assume daily transaction fees of 17000 ETH (number for convenience sake, as of platform release on February 15th fees approximate $10k but the underlying principle is the same), splitting 17000 ETH between 17m tokens, if you were to stake 100k tokens, this would give (1 / 170 * 17000 ETH) = 100 ETH worth of rewards.

What if we have a staked proportion of 75% with all tokens (1B) released?

If so, assuming that’s the case and subtracting some for liquidity provision and lost tokens and leaving us with 70% left (700M), obviously we would then get much less rewards, only 1.88 ETH.

However, if you were to have 100k tokens staked right now and being bullish enough on the platform to have staked for an entire year, with X2Y2 auto-compounding for you, you might have 10 times that amount, and thus your proportion of the total staked amount would depend on how many of the others are doing the same.

Despite the numbers not being accurate, I am sure that the tokens accumulated will be a considerable amount; for 10k tokens staked on February 15th (release date), the amount has already doubled in two days’ time. Even though by the 18th the APY has dropped, you could still double your initial, just with a bit more time, rewarding those diamond hands embracing the volatility.

The airdrop commenced as NFT staking began, but despite not many people obtaining the maximum amount [OpenSea users with traded volume exceeding 30 ETH can claim 1000 tokens], the resulting selloff led to the token bottoming at around $1.4 from a $2.5 initial.

Of course if sellers held they would have had four times the dollar value.

So when more people understand both the long and short term benefits of staking, we see an interesting game forming:

1. Staking for those bullish on the platform. You would expect the token price to continue appreciating and even though the staking APY would eventually decrease from the current 7000%, there will still be some upside around 100%; a key difference here from DeFi natives, in that the longer you intend to hold X2Y2, the more willing you would be to stake the tokens for the highest rewards. [I assume the author meant pool1 farm-and-dump and pool2 farming here.]

   On this point I would pay attention to the trading activity this week.

2. Selling from bearish outlook or other reasons. A few aspects to consider here, you have the high APY % rewards and some wanting to recoup their initial, another is those not interested in the platform at all and just selling their free airdrop.

   Thinking about these possible sellers, one point to notice is the ILO buyers are linearly vested so no big sell pressure from there. [Initial Liquidity Offering; presale for X2Y2 was 1.5% of overall supply; 1000 slots, each with max buy-in of 1.5 ETH, 15000 tokens linearly vested per block over 360 days]

   As for those buying in publicly (DEX), the average buy-in price would be above $1.6, expect strong support there. Since these buyers would most likely have a good understanding of the platform, they would stand to benefit at least a little but would not sell off entirely, considering that staking rewards allocated for the first month is double that of the second.

3. On the sidelines waiting for the “airdrop dump” to buy in. I have noticed this to be the biggest group from theoretical considerations and observations on socials. From my personal trading experience, the support around $1.6 - $2 would be extremely strong, instantly pulling back from that point.

   One crucial thing to notice is the slide downwards of $LOOKS, in which case its staking and rewards model may show to be unsustainable.

   To put it simply, LooksRare decided to have whales fund their platform initially, with shrimps following behind, so while whales make outsized returns, the shrimps divide the rest among themselves.

   First, to have whales buy in big amounts of $LOOKS cheaply; with some advertising by big names and washtrading producing transaction fees; at the same time small buyers filter in buys, staking for $LOOKS and ETH rewards.

   Underneath all this, real trading volume is hard to come by. Since with this model, all that whales care about is how much rewards they are getting as they got to buy in cheaply, instead of how the rewards are produced; as for smaller buyers, the shrimps, sure they might get a share of rewards but the relatively miniscule share leads to a considerable selling pressure.

   There is only one way to resolve this. To establish a positive cycle before said pressure can take place, grow genuine trading volume on the platform and users actually using the platform, as opposed to having a small number of people profiteering off the specifically designed economic model.

   As regards X2Y2, since whales are limited (max 1000 X2Y2 from airdrop), no presale to whales (I am a passionate volunteer, but my only whitelist slot was obtained through giving much feedback through official channels, I did not receive any benefits through my position as a discord channel mod), resulting in a fairer token distribution, which can be seen here 《X2Y2白皮书更新——Beta 和 X2Y2 代币经济学细节揭晓》。[Article by author explaining X2Y2 tokenomics, details regarding tokenomics and rewards. https://docs.x2y2.io/tokens/tokenomics ]

   From what I can see, $LOOKS is not looking so good. [hehe]

At the same time, a $LOOKS whale has been moving into X2Y2. Example:

Buying 1000 ETH of X2Y2 and according to on-chain data, the whale is one of the early $LOOKS participants.

A few details to pay close attention to:

• NFT listing rewards take a few [3] days to realize. Similar to staking rewards, it takes time to learn and participate in the market.

  Whatever the cause, many will come to realize that they can obtain a quite significant amount of rewards listing and staking on X2Y2. As you can see below, 45% out of 65% of rewards is allocated to staking NFTs. [Percentages are of total tokens]

Notice that X2Y2 staking rewards in the first month is higher than listing rewards:

However, not everyone can stomach the risk of buying NFTs just to list them for rewards (I personally bought Azuki, Zipcy etc. for this), due to listings accountable for rewards only showing after 3 days, I will post updates on my twitter @BTCdayu.

• The positive cycle mentioned before will come swiftly.

  When the market realizes that NFTs listed on X2Y2 are rewarded and that early participants have made outsized returns from doing so.

  There will be an explosive increase in the listings of high quality NFTs (from what I can see, the largest increase will be in 1 ETH - 10 ETH floor NFTs, since BAYC and PUNK holders will not care much about the rewards amount which is probably small change to them).

  At the moment a lot of the discussion is centered around whether it is worth the gas fees to claim the small airdrop but this entirely misses the point. The airdrop is a drop in the bucket to whales, the real attraction being the NFT listing rewards.

Compared to listings on OpenSea, on X2Y2, with a lower transaction fee of 2% (Opensea 2.5%), selling a NFT for 10 ETH would net you an extra profit of 0.5 ETH, add to that the airdrops and listing rewards, why wouldn’t you?

Thus we discover a perfectly self-reinforcing economy of the ecosystem:

• Attracting listings through airdrops and listing rewards.

• Retaining users with a good platform (bulk listings, sorting by rare traits and constant shipping by the team)

• As more users are onboarded, rewards in transaction fees.

• Transaction fees are entirely distributed to X2Y2 stakers [in WETH]. (Important point, compared to DOT, ATOM, UNI, SUSHI, you can have a share in the profits, if these tokens can reach $40, what about X2Y2?)

A positive cycle: A healthy platform economy, leading to high demand of X2Y2 tokens, eventually reaching and exceeding a 75% staking rate similar to other staking tokens.

To answer two more questions:

1. This website added NFT capabilities recently [I assume author meant Etherscan displaying NFT images], might it challenge X2Y2?

   My answer, it’s not even worth mentioning.

   User experience comes first above all, look at Tesla producing cars, Apple producing phones, if some company comes by and they too want to start producing these things, so what?

   In the end it’s the quality that matters: the team, their experience, the circumstances, the community etc.

2. I’ve heard that OpenSea might be releasing their own token, might then X2Y2 lose out?

   No, OpenSea will most definitely fail (I think X2Y2 will come out on top, but of course there might be other competitors in the future too). The reason is this, OpenSea is funded by institutions and investors, they have put in resources in the very beginning, so to start sharing revenue with users at this stage is impossible and impractical.

   They are going with their Web2 ways, nothing wrong with that. But boomers, times have changed !

To understand more about X2Y2, you can read these below:

• 《X2Y2白皮书第一版》

• 《如何投资一个好的标的》

• 《X2Y2白皮书更新——Beta 和 X2Y2 代币经济学细节揭晓》

This article does not constitute financial advice. I disagree anybody investing based on my writings and not their own research. All of my viewpoints might be mistaken, please think independently and do your own research !