This is a sequel to my Letter on Infinite Regret. Of all my Letters, that one struck a chord more than any. That Letter was born out of a tweet, and this one is too. About a month ago I wrote a Twitter thread on Impossible Expectations in relation to project founders and how difficult it is to keep up with the demands of the market. I’d like to dive deeper into that topic and look at the Impossible Expectations that are set on projects in this space.
One of the problems with our market is how much of it is fuelled by pure hype and speculation. The “value” of most NFTs is quite simply “what other people want to pay for them”, and people decide what they want to pay largely based on emotions and usually nothing tangible. When deciding whether or not to buy an NFT (for financial gain), it’s not what do I think of the project, it’s what do I think other people think of the project. This quickly becomes problematic when everyone is deciding whether or not to buy an NFT based largely on what they think other people think.
Another problem is that with any community, you will have a diverse set of desires and expectations. You will also have different entry points for all holders. Some will have bought at mint for 0.1 ETH, some might have paid 0.7 ETH, some might have paid 10 ETH. Perhaps it was a free airdrop — the expectations of someone who received something for free are likely going to be wildly different than those of someone who bought that free item on the secondary market for 3 ETH. It’s nigh impossible for a project to manage the expectations of both of these groups.
As you begin to add more variables into the mix, it gets even more impossible. Some people are buying with the hope / expectation to flip within 24hrs and make a profit. Others are buying with the same hope except their timeline is one month. Others are buying with the intent to hold for 5-10 years, and others still who never want to sell.
Some people want to be part of a friendly and inclusive community; to find their home in the metaverse where they can hang out and vibe with likeminded degens. Others are looking for direct utility: allowlist spots, discounts, IRL events, other perks. Others yet are looking for direct ponzinomics, and many of them don’t realize that the things they want are ponzinomics. “Wen token”. “Wen airdrop”. They see other projects/communities dropping “things” of “value” to their holders, and they want that. Apes dropped Mutants, why can’t we get that? So-and-so dropped an ERC-20 token and their holders are making $400 a day!! Why can’t we get that?
Most of the time it’s because it’s extremely unrealistic to drop anything which dilutes the ecosystem and find a way to have it be value additive. Mutants were an exception. For every Mutant drop, there have probably quite literally been 100 tier-2 ecosystem NFT drops that have not delivered what holders, and the team, were hoping.
This generally puts project founders in an incredibly difficult position. Cater to those looking for short term gains, or build for the long term? Obviously almost everyone is gonna say “build for the long term”, but what happens when that comes at the expense of your floor price nosediving and interest waning in your project? It’s at this point that some founders get swayed to try and inject short term value, to drum up hype, to add to speculation. Sometimes it works; usually it’s just a bandaid that will disintegrate in a few days.
Sadly, most of the market does not care about the long term. A majority of people are overleveraged in NFTs/crypto, and are low on liquidity. They’re juggling their ETH and trying to extract as much as possible from a project to flip / buy into another. Sitting on an asset that is “doing nothing” for a month let alone several is unacceptable to most. To the less-pleasant, it’s outright egregious and maddening. They’re thinking in terms of opportunity cost, and comparing this project to all the other ones that are going up in price — not to the ones that are going down / going down more. It’s human nature to compare our situation to that of people better than us.
Most people are in this space to make money. It kinda sucks, but it’s the cold hard truth. Money talks. I’d wager that 95%+ of the time someone buys an NFT, they’re hoping to be able to sell it later for a profit. We want number to go up. More dangerously though, we expect number to go up. Why else buy the NFT? I know there are significant exceptions to this simplification, but I would wager than the vast majority of people buying and holding NFTs are doing so because they hope/believe number will go up.
Because of this, the metric most often used to depict the success of a project is its floor price. This is pretty crazy because the floor price of a project depends on infinite things as mentioned above — many of which are entirely outside the control of the team running the project. It’s also crazy because what is good for short term floor price appreciation, is often not good for longevity / long term price appreciation.
This can really weigh on the minds of project founders. It’s not fun to be in an impossible position, where you know that almost no matter what you do, you’re going to be disappointing some of your holders. Sometimes you’re going to be disappointing most of them. It’s hard to know and see until you’re on the founder-side of the equation, and/or until you speak with dozens of people who are running a project — this shit ain’t easy. Not that it’s meant to be, but it’s sometimes a lonely pursuit where founders feel like they’re trapped in some impossible situation. Worse, many have nobody to talk to about it — there’s some sorta stigma I think for founders showing weakness. “What if it tanks the floor price?”. Ugh.
You know what the scumbag founders do? They rug. Either a soft rug where they stop showing up, stop putting work and effort into the project, and eventually all-but ghost the community. Or a hard rug where they just delete everything and disappear into the ether. It sucks, it’s obviously awful, but… it’s somewhat understandable.
Something I think that we as a space haven’t quite figured out yet is: for founders who work on a project for a long time, pour their heart and soul into something, only to find it not succeeding — how can they ethically exit/wind up the project? The status quo is basically for founders to soft rug. I’m not sure what the best approach is — probably some level of transparency regarding what happened to the funds they raised, potentially a refund if there are excess funds left, and an offer to hand over the keys to someone in the community if they desire to take over — else a mutually respectful “moving on with our lives” decision between founder(s) and community.
Anyway. I doubt this will be ‘solved’ any time soon. Let’s look at a real example of Impossible Expectations that I noticed and monitored over the weekend.
Proof, Moonbirds, Oddities, and Nesting Rewards
Okay let’s talk about the elephant wearing a fanny pack in the room. A couple of days ago the Moonbirds silver nesting rewards were revealed. A quick primer: Moonbirds is an NFT project with a “nesting” feature, which is basically where you can elect to “nest” your bird and soft commit to holding long term, and after x days the nest upgrades revealing certain (generally unknown) rewards. After 30 days, nesters received a bronze nest set of rewards which was a pack of stickers + a cap. After 60 days, silver nesters received a fanny pack (or hip pack), some socks, and some pins.
I’ve been a holder and nester since Day 1. The reception to the 30 day rewards was overwhelmingly positive. People loved it. Free merch? Stickers? That’s fun! I get this for doing basically nothing? Thanks, Proof team!
The reception to the 60 day rewards was much more mixed, with a lot of negativity towards the team. Objectively, the 60 day rewards are better. More items, more costly items. All still for free. So why the sudden outpouring of mockery towards the team? It all comes down to expectations. For whatever reason, it seems the community (or at least some subset of it) was expecting a lot more. Perhaps a token, or a free airdrop worth 3 ETH. These expectations are pretty ludicrous and impossible to live up to.
Actually — I take that back. It would have been relatively easy for the team to deliver some sort of reward that resulted in 3 ETH of tangible value going to holders. But almost certainly, it would have required one of two things to happen:
- They would have to destroy their treasury and spend a stupendous % of it on these rewards, or
- They would have had to employ some sort of ponzinomics system we’ve seen far too often in this space. Dropping more tokens and magically hoping/expecting them to have value, perhaps by promising the world and feeding the hype + speculation machine
So why did people have such vastly different expectations from one nest to the next? From my perspective, it comes down to two thing again:
- Communication from the team
- Perception from the community
They’re tied together. Leading up to the bronze nest, there was already talk that it would be a “fun” drop, and I think stickers were already known as something that nesters would be getting. Turns out there was more than that, we got a hat too! Nice. But wait, there’s more. There was an additional, unplanned airdrop of Oddities to everyone who was nested. The Oddities NFTs were selling on the secondary market for 3-4 ETH. This was separate to the bronze nesting rewards, and a total surprise-and-delight situation, but because it happened around the same time, a lot of people are likely to have conflated “bronze nest = airdrop worth 3-4 ETH”.
Side note: the fact that they were “worth” 3-4 ETH means that people were actively buying them for this amount on the secondary market. You can see we already have two distinctly different sets of expectations now — a “free” airdrop where some people have a cost-basis of 0 vs others who have one of 4 ETH, and where the team received no initial sale revenue from. You try balance those expectations.
The events surrounding the bronze nesting rewards day were totally underpromised and overdelivered. Let’s look at the silver rewards day which happened a couple of days ago.
Many in the community were expecting “bigger and better” rewards than the bronze rewards. Unfortunately, in the minds of many, bronze nesting rewards included Oddities. Additionally, the team has been hyping things up a little more lately and talking about all the amazing, incredible things that are being built and worked on. That’s awesome and great and makes me / people bullish over the long term, but I suspect some people also conflated with “amazing, incredible things being built” to equal “amazing, incredible things for silver nest rewards”.
In addition, something I have heard a lot is people talking about owning a $30k NFT and “only” getting some free socks, pins, fanny pack. There’s some sense of entitlement people feel owning an asset worth such a significant sum. While some of that is warranted — what a lot of people neglect to remember is that when they paid $30k, they were not buying it from the team. This was a secondary market sale. Yes the team gets a royalty payment, and has (significant) funding from the initial sale(s), but there’s still an enormous difference.
Responsible treasury management is an incredibly important thing for any project wanting to ensure longevity. It usually comes at the cost of short term ponzinomics. You have to consider tax, payroll, operating costs, marketing, IRL events, and much more. Running some napkin math — 10,000 MB holders. Pins, socks, fannypack — I dunno how much stuff costs but let’s say it cost $75 for the bundle. That’s $750k. That’s no small sum. Some people were asking/hoping for 1-3 ETH worth of value. That’s like $15-30m of value the team is meant to be creating lol. While that can just come out of thin air, that’s usually ponzinomics once again. In reality, if they airdropped another “thing” like Oddities, it would further dilute the ecosystem and likely the net-result would be neutral for most holders.
Could a lot of this have been mitigated by better/different communication from the team? Perhaps. Probably. It’s really easy to see and say in hindsight — it’s a lot more difficult when we put ourselves in their shoes. I know, because I have been thinking a lot about this very thing lately regarding the approach I want to take for the things we have in the pipeline at ZenAcademy.
I’m not sure there’s a slam dunk known answer for the best style of communication and level of disclosure projects should be giving to the community. A year ago, when I was young and starry-eyed, I thought that 100% total openness and transparency was obviously the best approach. I have long since changed my mind. At the start of this Letter I said that much of our space is fuelled by hype and speculation. That’s not great, but it also can’t / shouldn’t be ignored. Offering total transparency and disclosing every iota of the value proposition you are offering sounds laudable, but, quite simply, it’s not what the market wants.
People enjoy a bit of mystery. People enjoy surprises. People enjoy speculation. I’ve seen it time and time again now where a project explicitly describes the value prop, accurately, and — well, the floor price more or less stays stagnant at that level. That might be fine for some projects, and some people, but for better-or-worse, our space is populated by a lot of degens. People get bored when number go sideways forever. A yearly 10% ROI is boring (which is insane, btw).
All this to say, I have come around to believe that the best communication style involves a balance of transparency as well as some level of keeping-your-cards-close-to-the-chest. You want to temper expectations, and I still believe in underpromise and overdeliver. But you want some expectations. There’s also a huge difference between your internal expectations and what amount of those are communicated externally.
The Proof team probably could have done a better job communicating in the lead up to the silver nest rewards (and probably the Oddities reveal). I’m certain they’ve heard all of the feedback from the community, and will take that into account and be more likely to do better going forward. It’s freaking hard though, man. To get it just right. I have a lot of empathy for all founders trying to straddle that delicate fine line between hype and reality.
Generally, I just have a lot of empathy for everyone in this space. It’s brutal. No matter what role you’re playing. Probably the best thing you can do is come up with a personal code to live by, set some goals, have a work ethic, and turn up every day. There’s gonna be ups and downs. You’ll swing and miss, you’ll hit some home runs (a little sports ball reference there for the fans). Hopefully you’ll learn from any missteps and make better decisions in the future. This goes for founders, flippers, artists, collectors. Anyone, and everyone.
Next time you find yourself getting worked up at a decision a project has made, take a moment to pause and consider the situation the team is in. Sometimes a project truly does make a harebrained decision and shows no remorse or understanding. They probably deserve some harsh words. Almost always, though, if it’s a legitimate project with good human beings working hard on it (there truly are a lot of these projects out there), they’re trying their best and a little grace and compassion goes a long way.
Empathy makes the world go round.
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Disclaimer: The content covered in this newsletter is not to be considered as investment advice. I’m not a financial adviser. These are only my own opinions and ideas. You should always consult with a professional/licensed financial adviser before trading or investing in any cryptocurrency related product.
Disclaimer: I own 1 PROOF collective pass, 9 MoonBirds, and 20 Oddities.