Baking Utility into NFTs by Chris Robison

okay cool up next we have Chris Robertson from hoard talking about baking utility in 2nf teas so I'm sure many of you have heard about non fungible tokens otherwise known as Nifty's or ERC 7:21 tokens by now super hot topic lots of really exciting projects happening in the space so let's hear about it from Chris sweet okay thank you guys for sticking around and for being here listening the presentations I think I saw MP just a little bit earlier thank you for organizing the event and for all the volunteers so jumping into it the title of this presentation is baking utility in 2nf t's how to create value with non fungible tokens beyond simple scarcity so the purpose of this talk is to explore different crypto economic models that might work for NF T's beyond just there being a limited number of tokens or in other words going with the collectibles model so my name is Chris Robison and I'm with hoard where we are designing true ownership within videogames the premise of this talk is that video games are the original virtual economies and so by looking at them there's a lot that we can learn from them so the agenda for today is to start with an introduction to NF T's just to catch everyone up to speed I think probably most you guys are familiar with them but as I understand it this is the only talk on non fungible tokens so we're just gonna begin there then we're gonna talk about scarcity which has been the pervasive model thus far we're going to talk about sort of the economics about why that might not be the most viable business strategy moving forward if it's your only strategy and then we're gonna look at three other strategies for designing utility with NF T's and those are using the NFT to be productive using them to design over gaps and ecosystems and to bind people together who have different specializations towards a common goal so introduction is what is an N of T anyway so NF T stands for non fungible token and that is a single token that cannot be replace by an identical digital asset or utility so what does I mean in practical terms here are three examples we can look at a house token one token that might represent a physical house in the real world we could also look at a debt asset like a virtual loan and we can also look at something like videogame Armour each one of these could be unique each one has its own history and each one is an unfunded meaning that if you have one house token and you exchange it for another house token that's not exactly an equal trade you're actually getting two you completely different houses they have different neighborhoods different neighbors different views different layouts it's entirely unique whereas with ether if you trade two ether for each other no one ether is more valuable and then another ether so you're getting an equal value so the problem that we're looking to solve here is we're trying to figure out where do we Biddle n F TS to create value so a few things to acknowledge when looking at this problem is that MF TS are just one tool and there are many other tools out there in the ecosystem and this vast landscape of combinations is constantly changing therefore a lot of the use cases for NF T's haven't been created yet so you can see over here on the side there is a picture of a crypto Kitty which was the first NF T to be designed and launched and deployed on main net and it's laid over a game board way T just exemplifying that it was the first one that was sort of laid in the ecosystem and everyone sort of trying to figure out where to make plays after this so if we're looking to decide where to create value with Hannity's and it's important to understand what value drivers are so we can break it down into three rough categories the first one is basic utility so this means that the NFT would be useful profitable or beneficial in some way and it's important to understand that this would be an objective attribute meaning that profitability that usefulness would be the same for anybody if they were in a similar situation then we could look at something like entertainment which is obviously very popular in video games but I'm going to separate this out just a little bit because entertainment is a very subjective topic meaning what I find entertaining what you find entertaining could be completely different and what we're willing to pay to be entertained for a certain amount of time is also very different the third value driver is speculation and this is where you are purchasing something with the hopes that you're going to return a profit but you also recognize that there's a potential downside this is also not this is different than the other two categories and that it's completely separated from your own personal experience meaning no utility has been being generated for yourself or those around you you're not personally being entertained in fact the work that's being done to create the value is done entirely by somebody else so with that understanding we can jump into what the first topic or the first strategy has been for NF T's thus far and that is designing scarcity or collectibles we're gonna look at why this is a monopolistic strategy and why it by itself doesn't really work moving forward so what is a monopolistic strategy when a monopolist enters a market and their profit seeking they will always produce a smaller quantity of goods meaning artificial scarcity at a higher price than a perfectly competitive market would so taking a look at this in practical terms we can examine and compare a competitive market versus a monopoly and we can see in a competitive market the quantity of goods and the price end up hitting an equilibrium with the market in a monopoly we can see that a lower quantity of goods is produced at that higher price like we saw in that quote but we should ask ourselves why is that the gray boxes here represent the revenue generated in each one of these types of markets and as you can see the competitive market actually generates more revenue than the monopoly so if monopoly has complete control over the ecosystem why would they not just produce what would generate the most revenue and that's because this is oversimplified but there's cost involved and this is true even with NF T's you have design costs you have developmental costs you even have just standard maintenance cost with keeping your website up and running and so in this case we can see that monopolistic strategy would generate more profit so obviously that is more desirable for any sort of NFT project in the pursuit of creating something like a collectible so at this point it's important to take a look at a timeline of when NF TS began and that was at ëthe Waterloo when crypto Kitty's launched they did in fact create a limited quantity which was probably less than the total market demand for collectibles in general and so that's probably why the price gets such a high point that's why I jammed up the etherion blockchain it was entering a freshly new market which meant it had a monopoly over the collectibles market nowadays there are a lot of other collectible projects that are trying to go after a similar model they're trying to be the next big collectible and hopefully capture all the excitement like cryptic kitties did however it's important to note here that each one of these projects is not operating and its own independent silo in fact at this point you could say that they're all now competing in a similar market for scarcity so if one collectible becomes too scarce if you're looking to just make money you can now simply move on to another collectible TechCrunch just two weeks ago published an article titled why the next crypto kitties won't be about collectibles I think this kind of illustrates the point from an economics perspective so I do agree with their thesis there so the first opportunity that we have with NF T's is to use them to become productive so where we can calculate sort of a cash flow maybe revenue and also calculate risk that's involved with holding an NF T so in the video game world we can measure the productivity of items and this is pretty common so in this scenario we have two different swords we have a single sword and we have a double sword the single sword can be purchased for 100 loot and it has the utility of being able to generate about 200 loot over the course of ten hours on average for the average game player okay so the double sword coincidentally cost them two hundred Li so it would be valuable for a player to collect this because over the same average ten hours of gameplay they'd be able to collect 500 so it's two and a half times more productive what a gameplay scenario might look like is a player begins the game and they're instantly given a hundred loot to begin that game they go to a marketplace and they purchase the single sword and then they go to battle say a dragon so over the course of one hour of gameplay they would earn twenty loot at this point they have a decision to make they can decide is this fun and if it is then they'll keep playing I'll do this again for ten more hours until they earn that 200 loot and then they go to a market where they can buy their double sword if on the other hand they look at this situation I think like yeah it's just okay and they want to augment their experience in some way then they can go ahead and speed up that process just go to the market buy that double sword for 200 or 4.1 eath and then they get their double sword looking at both of these scenarios it's important to look at what the costs are in either decision and that would be either spending 10 hours of time or earning the sword or paying point 1 eath to just buy the sword and so we can see based on that there is a time cost the player who goes out and just purchased their purchases their double sword would value their time we expect at least at at least point 0 1/8 per hour and they would do that in the hopes of then returning an increase of 30 loot per hour to their production so comparing that to the crypto space we can look at a project like dharma where an investor has the ability to go out to a marketplace and they can pick up some debt asset and similarly they have a similar decision model to follow where they can choose to earn income over the course of say six months or they can buy a debt asset fort anyth and there's an opportunity cost of say 10 eath over the course of six months amortized and the return to their production that they're hoping to make the return on their investment could be something like 15% per year on their money so you can see the upside to both of these kinds of systems are very similar they're both hoping to return some increase to their productivity but there is one big difference is that in video games it's designed into the ecosystem and so when you have that asset it's guaranteed that you're always going to earn that extra 30 loot with that double sword and that's not always the case with a project say like dharma where that 15% doesn't just come out of a design to ecosystem right it's actually coming from a potential downside and that is the probability that there's going to be a default on that loan that's not to say that there aren't downsides to video games because in fact there are if you go ahead and you spend a lot of money or time in a video game it could become dramatically less popular over time and you've just spent or wasted a lot of time and money in that ecosystem so moving on to the next opportunity is using n FTS to design over gaps in existing ecosystems this is a way to create subversive institutions so design gap is a failed or forgotten institution in the case of video games it might be just a glitch in the game so design gaps typically prevent players from achieving certain objectives or it can enable them to do unexpected things in video games and these are typically solved for by leveraging or utilizing in-game items so an example of a game exploit might be like this one in Halo oops where a player has figured out a way to lodge themselves inside of this wall where no other player can reach them and so they're able to have an advantage where they can snipe other players without the other players being able to reach them so how did they achieve this they figured out that there's a way to drive a vehicle up into a particular spot and once they get that vehicle in the spot then they use the vehicles exit vehicle command to lodge themselves into that wall so they're using an item in a way that it wasn't supposed to be used due to an exploit in the game other game exploits are slightly more economic in nature so let's touch a bit and touch base on one of those this is Ultima Online it's a massive multiplayer online game in it there was a bug found in the codebase that allowed the supply of gold to be accessible to anyone so you could just basically print off your own supply of money making the in-game economy sort of worthless and broken at that point the way that players figured out how to maintain their in-game economy was they discovered that the game designers happened to for fun put a bunch of horse dung throughout the videogame so they ended up picking that up and then they traded that as their in-game currency when I was looking for examples of subversive design basically finding existing eco systems where you could inject NF T's into them I wasn't able to find any however there is a project recently that launched called marble that I think kind of does something like this but when I did this presentation that wasn't out there it wasn't on my radar so my brother and I produced one with a developer who's hacking here this week named Jasper and it's called NF tweets so the idea is you can create a non fungible token in the Twitter universe by logging into this portal and in this portal you can go ahead type in your tweet as you would normally you go ahead and you sign a transaction when you sign that transaction and it confirms your tweet is then published to your Twitter handle and if tweets goes ahead and retweets that for you so it provides you with a bit of visibility and then you can go back to your wallet where you'll be able to see that you now own that tweet so that string is now unique and that is what is the identifier for that non fungible token what does this mean exactly not totally sure this is sort of experimental and that's kind of the point of like these hackathons right so this is meant to inspire you guys to try and think about where there are gaps and current systems as far as where this could fit in for the Twitter universe maybe NF tweets becomes the horse ton of Twitter okay so moving on to specialization using NF tees to find different individuals who have specializations and bringing them together to achieve some common goal or purpose so specialization is when players leverage different skills to work together towards a common goal and these typically emerge around a particular items so here's an example of mario party where Wario is the coin collector and Yoshi is the boat driver and they're using the boat as the item to attempt to win the race so we could look at this diagrammed as such if we go back to the Dharma example from earlier and as I was talked about earlier today as well there's four different individuals that come together to make the Dharma system work and make it valuable around that unique debt asset and that's the debtor-creditor underwriter and relayer so diagram looks like this and you can see there are parallels involved in both of these another project doing something similar where multiple people with specializations come together towards a common goal is a project called trust token where your token and creating security tokens say for example for a house so the homeowner owns the house they give it to a trust which is run by a fiduciary who's legally responsible for acting out the trust will and they can tokenize the house give it to beneficiaries you can vote on say who to rent the house out to in an Airbnb situation and again there are parallels here so that's pretty much it with the exception of an extra life here a few more ideas to take home with you ideas from video games that you can take into the crypto economic system so there are keys and video games which in that allow players to access something there are non tradable items like badges and achievements the utility behind these is that it binds or bonds players to a particular ecosystem makes them loyal even in like World of Warcraft there's such a thing as soul bonding for really valuable items bundles are another great way to diversify the experience of an ecosystem whereby one item is made up of many other items gifting is another great way to build utility if you create an ecosystem where gifting is a social norm it the utility of the item being gift it doesn't have to be productive necessarily it has to deal with building relationships in that ecosystem user-generated assets are also very valuable whereby an ecosystem gives an individual a set of building blocks they build the blocks together and they create something unique as well and finally custom modifications such as skins or hats or whatever might be these are used to create some sort of unique or personal identity within an ecosystem so thank you very much for listening follow us at horde exchange and I am at see Bob Robison [Applause] awesome thank you