NFTs are Ponzi Schemes, right? & WTF is a DAO?
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NFTs are Ponzi Schemes, right?
WTF is a DAO?
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NFTs are Ponzi Schemes, right?
What’s going on?
Punks, Apes, Cats & every other zoo animal is what’s going on. Million dollar sales for a jpeg and 100x gains in a matter of days. It seems like everyone is making it in the NFT land, but for each one that takes off, theres another that crashed.
Charles Ponzi was an Italian swindler and con artist who promised his clients a quick return. A return that was ultimately made up of money from new investors. Are NFTs the 2021's postal reply coupons? Let's unpack this.
The similarities and the differences
A defining feature of a Ponzi Scheme is to get to the top so that you can sihpon cash coming in from new participants. The amount of capital coming into the system usually equal the amount paid out to those at the top.
Similarities in NFT land:
Most NFT projects take a small royalty fee for each transaction on the secondary market. The project creators are free to use these funds how they see fit. Pay themselves, fine. Fund new community initiatives, great.
It pays to be early.
FOMO is a big driver of attention, most people buy the headlines and don’t actually know what they are buying into.
Most speculation will likely lead to capitulation. Value is derived from scarcity and exclusivity. Just because it's limited, doesn't mean it valuable.
Structural differences to a Ponzi:
NFTs are a 1 time entry ticket. Once you cash out, you’re out and can no longer be a part of the economic activity.
There's no hierarchy within NFTs. Apart from the creators, there is no top of the food chain. An NFT is simply a token of ownership, rather than a claim to revenue.
Price appreciation is a result of simple supply and demand. People will pay a premium if they want what you have, and when there is only 1 of it, the premium tends to be high. In a Ponzi, you don't make money in a through price appreciation, you do it by creating an infinite supply of memberships, products, etc. for anyone who wants in, so that the cash keeps flowing to the top.
Any increase in price remains as unrealized gains until sold. There is no siphon from new participants.
So, Ponzi or opportunity?
Like any other Ponzi schemes, an NFT project can create valueless tokens. An NFT in itself is just a vehicle to transfer value and ownership. What the project creators promise with the token is a separate function of an NFT.
The pace of evolution in the NFT space is blinding. It's part of what makes it exciting. Things can get very grey with the pace of experimentation of incentives and utility.
Greed exists in every shape and form. At the end of the day, behind each NFT is a living and breathing person. That person is susceptible to all the same greeds and temptations that are part of being human.
For the most part, NFTs are not structurally set up to be a Ponzi Scheme. That doesn't mean that there aren't other vices to be cautious about, pump & dumps, rug pulls, scams, insider trading exists and are very real. This is still obviously bad news, but it is less insidious as a structural Ponzi Scheme.
Where do we go from here?
All new technology can either be used as a tool or weapon; like fire, you can use it to build a civilization or burn it down. But If you take a look around NFT town, you will find far more wholesome communities than there are bad actors.
NFTs present a new mechanism to align incentives with creators and their communities. What we’re seeing now with zoo animals is today's container of this mechanism -- a way to transmit our identities into the virtual world. After all, we are non-fungible humans. In the not-so-distant future, you will likely be interacting with an NFT on a daily basis, since all it is is a mechanism to transfer ownership and value. It's up to you if you want to participate in that economic and social mechanism in its current glory and flaws today or sit this one out until it matures down the line.
Dive deeper
Hear from the early movers in the NFT space and where it’s headed.
👉 My views on NFTs in the thread below - by @punk6529
Discussion on how blurred the lines can be with Play to Earn games & NFTs
👉 NFT game looks to be an open Ponzi scheme vs what Bloomberg is saying - Reddit post
This covers the community aspect of NFTs in relation to Ponzi Schemes.
👉 Are NFTs Ponzi Schemes? - by Hansel
WTF is a DAO?
What is it?
If you’re reading this, you’ve probably heard of DAOs. But if you are anything like me, you probably have dismissed it as another niche of a niche of the internet. You’d be right, except for the part that it’ll quickly become a very central part of your life -- doing work online.
DAO is an acronym referring to Decentralised Autonomous Organisations. DAOs are digital communities rallying around a shared cause.
Decentralised: Community driven and owned. Fully democratised even though loosely organised.
Autonomous: Outcome of votes are implemented automatically without trusted intermediaries through encoded rules and shared treasuries.
Organisations: Groups of people self organising and coordinating towards a common goal.
Some joke about it’s definition being “group chats with a joint bank account”.
Why it matters?
According to a DAO data analytics website DeepDAO, in August last year, there were 2.2k members/token holders participating in DAOs. Today there are over 1M members. The total value of those DAOs was $63 million then, and today, they are collectively valued at $7.3 billion.
From the authors of BanklessDAO, “DAOs represent this shift in thinking. People in DAOs work at their own leisure, whether that’s five hours a week or fifty, at one DAO or three. In fact, the majority of contributors within a DAO are part-time, which inverts the usual model found in traditional organizations. And guess what? Shit still gets done”
There is still a long way to go between now it’s DAOs vision of the future. However, if the last year’s adoption rate is anything to go by, the pace of events is only going to accelerate.
Dive deeper
DAOs are internet communities with a shared cap table and bank account.
👉 DAO Landscape by Coopahtroopa
DAOs are a new internet-native way for communities to efficiently and securely coordinate funds and labor.
👉 State of the DAOs #0 by Bankless DAO
Many may see those numbers and think of it as the next hot asset class to invest in, but those who say that are looking at it in the wrong way.
👉 DAOs May Be the Future of Work, but Don’t Bet on Them Being the Next Big Asset Class