NFT, the typical and atypical in the new paradise of Ponzi

Author: Qiang Hui AsHOnthEWaLL

After Ash drop2, Pak faced the biggest crisis of his career.

Due to issues with the smart contract, what was originally a major boon, Ash drop2, encountered a disastrous gas crisis, compounded by a large number of bots rushing in, resulting in a very poor minting experience in the NFT space this year. Although compensation measures were quickly introduced, many participants and old collectors were not convinced. It turned out that this terrible experience was merely a trigger.

Soon, an unprecedented split emerged within the Pak community, with many long-simmering emotions erupting. Several community KOLs began to criticize Pak fiercely, with some even being kicked out of the community and having their identities revoked. This was followed by whales dumping their holdings, KOLs tweeting discontent, and the conflicts becoming public.

Meanwhile, the price of Ash plummeted by over 80%, falling into a "prehistoric" price range.

On the other hand, the trading volume of merge surpassed $100 million, and the market demand for Pak's works seemed to remain strong.

As a pioneer in expanding the boundaries of NFT applications and a leading figure in art NFTs, Pak and the ecosystem and brand he created are undergoing a significant shake-up.

Can Pak and his ash ecosystem survive this "death spiral" catastrophe? Do Pak's holders truly understand Pak?

At the same time, the industry "benchmark" BAYC, although starting late, is steadily climbing.

For long-distance trekking, starting from the same point, even a slight angular difference can lead to thousands of kilometers of difference at the endpoint; the same applies to the marathon of NFT projects.

In this text, Xiao Huihui wants to discuss the "Ponzi" (not derogatory) of NFTs and illustrate it through the projects of Pak and BAYC.

1: NFT: A New Paradise of Ponzi

Firstly, almost all NFT projects are structured like a "Ponzi."

Here, "Ponzi" is not a derogatory term. Since the first issuance of notes by the Dutch East India Company, "Ponzi" has been an indispensable stimulant for human "innovation" activities.

As a new medium with the potential to penetrate billions of people, it is only natural for NFTs to quickly transform into a Ponzi system. After all, the imaginative space here is larger than that of the crypto circle; socializing, art, entertainment, virtual beings, e-commerce, advertising, fashion—any activity that exhausts human imagination can tell a story here.

And the biggest story will be the "metaverse." Metaverse means beyond-verse, which is a universe beyond the real universe. It is indeed a "vast world with great potential." Any boast, as long as you can think of it, can be made here. The founder of Coinbase said that NFTs are likely to surpass the crypto circle, which makes a lot of sense. The crypto circle still needs to talk about some technology and logic, while the metaverse storytelling is just about letting loose and boasting.

However, telling a story is one thing; whether the story can make people spend money is a completely different level.

Master Li's famous saying, "The consensus of leeks is also a consensus," holds true in NFTs as well. But don't underestimate the leeks; they are not fools. On the contrary, the leeks in NFTs are often quick-witted, willing to try new things, and possess a certain degree of independent thinking. The truly gullible fools have yet to come into contact with the CX of NFTs.

So, "leeks" can understand the "Ponzi" structure of NFTs.

If that's the case, why buy NFTs?

The unified answer is "utility."

Specifically, "utility" can be divided into two types, which Xiao Huihui will temporarily call "short-term utility" and "long-term utility."

"Short-term utility," simply put, means that by buying this NFT, you can receive an airdrop/whitelist for another NFT, then receive an airdrop of a new token, then another NFT airdrop/whitelist, and then more token airdrops… Every project at every level needs more people and money to come in; is there any structure more "Ponzi" than this?

However, "explosions" are the inevitable outcome for most "Ponzis," with only a few exceptions.

These few exceptions are the "Ponzi till you make it," where projects can truly achieve "long-term utility."

"Long-term utility," as commonly stated now, means that I want to develop a game, create my own universe, and then all previously issued NFTs or tokens can be used within it, which would be considered reaching the "beginner stage of the metaverse."

The projects that leeks believe have the ability to reach the "beginner stage of the metaverse" are blue chips, the next Bitcoin or Ethereum. Remember, "the consensus of leeks is also a consensus." BAYC maintaining a floor price of over 100+ ETH indicates that the market consensus is very firm.

All current NFT holders, in Xiao Huihui's view, are those who see the future. But as mentioned many times in previous articles, seeing the future does not mean seeing it clearly, nor does it mean you can win effortlessly.

If your project's "short-term utility" is done well, you can laugh until now; if the "long-term utility" is done well, you can laugh until the end.

There are three risks here.

The first is selection risk.

With countless projects, 99% will never achieve "long-term utility." Projects with potential either have a first-mover advantage (they have already launched, and you are likely not on board) or are new projects with all-star teams and top resources (consensus has already formed, and tickets are either hard to grab or already priced in).

Fortunately, there will always be the next project, but the premise is that you need to have enough liquidity, using the VC method from the rise of web2 to diversify your bets. The result of this strategy is that the more money you have, the higher the hit probability; with less money, liquidity dries up, and you basically rely on luck.

In short, "the rich get richer." For ordinary leeks, before "digging up" the first pot of gold, they can only rely on digging up the first pot of gold.

The second is execution risk.

Even if you are very lucky or wealthy and on the "blue chip" train, it is still very difficult to "win effortlessly."

Because in a brand new field like the "metaverse," the "execution risk" is indeed very high. What is the metaverse? No one has seen it; it only exists in dreams. BAYC's $4 billion valuation is indeed exaggerated, but even a giant like Meta, after spending hundreds of billions over the years, has not yet produced a significant metaverse. If you buy Meta's stock with all your assets, can you really win effortlessly on the metaverse train? Let alone some NFT projects that have only been established for a few months, the tests they face are indeed limited.

Of course, projects like BAYC, Azuki, and Decentraland are in a very good position, and the market has given corresponding pricing, but this pricing is just a vote, not a "guarantee." How playable is BAYC's game? How many people will play? Can it become the "ape universe"? It's all too hard to say.

The third is time risk.

Xiao Huihui believes this is the biggest risk. Even if the project team is very capable and can truly deliver on their promises, this is usually a matter of 2, 3, or even 5 to 10 years down the line. Xiao Huihui bought land in Decentraland and mana back in 2017, experiencing how many "zeroes," how many bleak moments; even now, it cannot be said to be explosive.

For more projects, whether it's the project team or the holders, how many can endure several bull and bear markets and still persist? The previous white papers and the current roadmaps are all about long waits.

"It is not because we see and believe, but because we believe that we see" is a very idealistic statement, very suitable for brainwashing young people who lack life experience. But in real life, how many such romantic and poetic people have you encountered?

Between holders and flippers, alpha and rug pulls, it is just a matter of a single thought.

The above is what Xiao Huihui believes to be the current state of the NFT market. Whether it's Kevin or Frankfrank, whether it's waifu or meme, and regardless of whether it's metaverse games or art collectibles, they all cannot escape the "Ponzi" (not derogatory). Promising NFT projects are those that operate the "Ponzi" structure very well. We can verify this with the aforementioned "short-term utility" and "long-term utility."

2: Atypical Ponzi 1: The Sudden Fall of the Pak Universe

Before Ash drop2, the Pak universe was an almost perfect "Ponzi." The main reason is that holders had a very rich imagination about the "utility" of the "Pak universe."

Looking at the image, the pinnacle of Pak's Ponzi was 60 1/1 NFTs from 2020, with total sales of a few thousand dollars. Not much, but this was the beginning of Pak's art universe.

The second drop X had 300 NFTs, generating hundreds of thousands of dollars.

The number of collectors increased fivefold, and revenue increased by hundreds of times. These core collectors mostly became the main promoters of Pak NFTs in the future.

The third drop, Fungibles, found a partnership with Sotheby's, selling over 6,000 NFTs for $17 million. Again, there was a several-fold increase in collectors and revenue, and Pak began to enter the mainstream art scene.

The fourth drop, pages/poets, had over 65,000 NFTs, generating $70 million. The Pak universe officially launched!

The fifth drop, merge, had 310,000 NFTs, generating $92 million in revenue, and Pak surpassed Beeple to become the third highest-selling artist alive.

Up to this point, the Ponzi structure of the Pak universe was nearly perfect, advancing layer by layer, demonstrating strong explosive power. In just one year, Pak transformed from a relatively unknown designer into an artist with a place in modern art history.

Pak's NFT works can be said to represent art NFTs, appearing in various mainstream media and exhibitions. His Discord channel has entry conditions that are based on luck, exuding high prestige, making it hard to get in. In the entire NFT space, it is almost impossible to find critical voices against Pak.

The underlying reason is that everyone has a very rich imagination and high expectations for Pak's "utility," and Pak has reaped the benefits of first-mover advantage.

Pak completed the issuance of ash as early as May 2021 (stimulating the imagination of "long-term utility") and innovatively established the curation mechanism for the ash NFT exclusive token (the action of "short-term utility" was ahead of most project teams).

This expectation caused the prices of Pak's works and ash to continue to rise.

But looking back, at this time, the utility of the Pak universe may have existed more in the imaginations of the holders themselves.

Due to Pak's cultivated mysterious persona, he has always maintained anonymity, and his statements on Twitter and Discord are always "vague." Thus, he has always been ambiguous about the "short-term utility" of his NFTs and the "long-term utility" of the ash token.

On the other hand, the demands of the holders were very clear.

What do Pak NFT holders want?

They want "short-term utility"!

They want to receive airdrops for NFTs like Cubes and poets in future drops, or at least have whitelist/minting rights, discounts on future art purchases, or at the very least, the right to enter the Discord channel.

What do ash holders want?

They want "long-term utility"!

They want staking incentives, future premiums for the first art NFT economic system, and a commission-free, gas-free purchasing experience and priority for future top artists' works.

However, Pak has never promised any "short-term utility."

The rules for each drop are announced only a few days before the drop, with complete discretion in Pak's hands. Often, these "short-term utilities" are quite "petty."

Moreover, astonishingly, starting from ash drop1, both the "short-term utility" for Pak NFT holders and ash holders suddenly vanished.

And the "long-term utility" is even more "idealistic and rich, but the reality is very thin."

Ash drop2 was originally a concentrated release of imagination for the Pak universe. It gathered 30 top creators in the NFT field, and the initial works could only be purchased with ash. Coupled with the subsequent burning mechanism, it could be said to be the cornerstone of the future art NFT market.

As the most important link in the Pak universe, Pak could have tilted towards all NFT holders in ash drop2, further consolidating "short-term utility"; at the same time, he could have presented a clear roadmap, outlining the grand vision of ash as the first economic system for art NFTs, illustrating the "long-term utility" of the Pak universe, which would greatly increase the long-term demand for ash.

However, in pursuit of the "small goal" of "enlarging the holder base," Pak adopted an "everyone is equal" mechanism, completely eliminating the long-term holders' imagination of "short-term utility."

Moreover, the empowerment of ash's "long-term utility" was also not reflected in ash drop2: the artworks purchased with ash still primarily traded in the secondary market using ETH, and there were no fee discounts or use cases for ash; purchasing with ash felt more like a one-time show.

The holders' "long-term utility" also vanished.

And unfortunately, the smart contract for ash drop2 had a basic error, leaving many ash holders with fresh ash that they had nowhere to spend, leading to a crash in ash's price, and the accumulated emotions finally erupted.

From the market response, it seems that Pak's universe has fallen into a four-step "death spiral":

1) The disillusionment of "short-term utility" and "long-term utility" destroyed the patience of the holders (including many whales). Whales, new players who bought ash but didn't use it, and artists who participated in drop2 with large amounts of ash began to sell off.

2) Since most of Pak's NFTs are deeply tied to ash through the burning mechanism, the plummet in ash's price also triggered a wave of NFT price drops, which in turn led to further declines in ash's price.

3) Pak maintained the persona of a great artist, adopting a dismissive and tough attitude towards price drops and criticism, further dividing the community and leading to more disillusionment.

4) Repeat step 1).

From the perspective of Ponzi structure and utility, Pak has indeed squandered a good hand.

But that doesn't mean the Pak universe is beyond saving. Xiao Huihui even believes that the Pak universe has a high chance of a phoenix-like rebirth.

Firstly, even from the utility perspective, the problems in the Pak universe are clearly issues of mechanism design and execution (tokenomics design flaws and project oversupply breaking the supply-demand balance), which can be remedied.

In this regard, Xiao Huihui discovered a great analysis from an early Pak collector @ABBBBBBNFT (https://twitter.com/ABBBBBBNFT/status/1511930386515116032), who listed many very valuable solutions from the perspective of token design and community operation.

More importantly, the universe of art NFTs fundamentally differs from other types of NFT universes.

Art NFTs may not need utility at all!

When artistic language accumulates to a certain extent, it can form a power similar to "religion," a force that can far exceed "commercial" power without adhering to the logic of capital.

Generally speaking, talented artists often do not need the recognition of "ordinary people," nor do they need to "play by the rules." Art exists above capital, and artists exist above merchants.

Xiao Huihui believes that as the operator of the largest art NFT project, Pak is unlikely to suddenly fail to understand the importance of the Ponzi structure and utility in NFTs. Pak's continuous offense towards his main audience—collectors coming to make quick money—seems more like a performance of "behavioral art."

His strong interest in innovation and boundary expansion makes Pak feel bored or even repulsed by some established "conventional operations."

He has repeatedly emphasized in Discord that he has been floating in the media field for decades, and the "noise" that has emerged now is something he has long been accustomed to and has no impact on him; he still immerses himself in his "innovative" work every day.

We can interpret his words as "arrogance," "childishness," or "unprofessionalism," but we can also understand them from a perspective beyond NFT project operation as "artistic performance of a new medium."

Perhaps this is a bigger, longer game?

To some extent, comparing the Pak universe with other NFT projects may not be appropriate at all. Because they may be two different species. This might explain why the Pak universe suddenly transformed from a "perfect Ponzi" into an "atypical Ponzi."

However, to clarify the Ponzi structure and utility of NFTs, let's discuss a more classic and "standard" NFT case, BAYC.

3: Classic Ponzi 2: The Rise of the Ape Universe

From the perspective of Ponzi structure, BAYC has moved much slower than Pak, having only completed the NFT issuance and token launch steps so far, overall lagging behind the Pak universe by more than half a year.

But BAYC is moving more steadily, and the picture is becoming more complete, gradually materializing holders' imaginations of utility.

From the beginning, as a purely PFP project, BAYC had no "artistic burden." There was no need for pretentiousness or an artistic persona because all PFP projects that do not want to run away have only one path: to create the imagination of utility, create the imagination of utility, and create more imagination of utility. (Although art projects are essentially the same, the "dream-making" methods are much more complex than pure PFP projects.)

Looking back, BAYC's approach is very clear:

1) Become the leader of PFP projects,

2) Launch a token,

3) Build the ape universe.

The idea is not difficult; what is rare is that each step is taken very solidly.

In stage 1), Yuga Labs was very focused, with only one operational goal: to maintain their first NFT product, BAYC. All BAYC holders are super VIP users of Yuga Labs, and by airdropping MAYC and BAKC to holders, they continuously maintain and consolidate the "short-term utility" expectations of BAYC holders.

It is worth noting that, unlike Pak's constant issuance of NFTs at the same level, Yuga Labs has always regarded BAYC as the core IP, while the subsequently issued BAKC and MAYC are merely subordinate IPs and cannot be compared with BAYC.

This approach has had very clear effects.

Firstly, it rewards early users, retaining a large number of users by meeting "short-term utility"; secondly, it "recruits new users" by expanding the total number of NFTs and bringing new users into the community.

Let's compare this with Pak's NFTs, which have never had a clear distinction between core and peripheral; the operation has blindly pursued "recruiting new users" while neglecting or even harming the interests of early users, leading long-term holders to feel "betrayed."

Yuga Labs has always centered its operations around BAYC, from airdropping NFTs to continuously seeking celebrity endorsements, ensuring that the interests of holders and the project team are always aligned.

To put it crudely, holding Pak means you need to serve Pak; holding BAYC means you just need to enjoy the service. Which one truly embodies the spirit of web3? It doesn't matter. Because the market says: price is what matters.

In stage 2), after several months of preheating, BAYC met the expectations for the airdrop of Apecoin. In Xiao Huihui's view, this was the operation that completely set BAYC apart from other PFP projects.

The team did not blindly adhere to the so-called "fair-launch" dogma of web3; instead, they were very skilled in the operational methods of web2 products. From public opinion preheating to game trials to a shocking airdrop, BAYC was very patient and planned, taking several months to thoroughly execute the "fan-favoring" route.

In terms of airdropping tokens, Yuga Labs was also not as petty as most project teams, directly airdropping tens of thousands of dollars to each BAYC holder!

This operation of exceeding expectations to meet "short-term utility" brought surprises to holders and created a huge wealth demonstration effect, igniting off-market users' wild imaginations about the future of the "ape universe," generating super strong demand for BAYC and Apecoin. After a brief crash, BAYC and Apecoin quickly rebounded, avoiding the "death spiral."

In stage 3), Yuga Labs secured massive financing and "leaked" detailed planning blueprints, continuing to satisfy holders' fantasies about "long-term utility."

From the future planning of the "ape universe," the content is nothing more than real estate, new NFTs, games, etc., and there is nothing particularly brilliant about it. But "it all relies on the peers' contrast," Yuga Labs' operational capabilities are indeed far superior to the current web3 competitors, turning ordinary hands into explosive ones.

After completing these three steps, BAYC has already taken a significant lead. Is the future here? Not necessarily.

The immense wealth effect and business opportunities reflected by BAYC, coupled with the arrival of a major crisis in web2, have led to more and more web2 "marketing" teams and even micro-business teams entering web3, making the "competition" in web3 operations increasingly fierce, and this pool of water will become murkier.

From nothing to something to chaos and then back to order, while order represents silence and death.

Epilogue

"Fake it till you make it" is a very motivational phrase, meaning that even if you can't do it now, you should pretend to be able to do it until you really can. In this sense, NFTs are truly "feeling your way across the river": even if your feet are empty, you should float on the water's surface, showing a smile and confidence, pretending to be grounded, silently chanting: "Ponzi it till you make it."

There is nothing new under the sun; whether cloaked in ICO, IEO, STO, or NFT, DAO, Web3, all participants swim in a Ponzi structure dominated by the latest narrative from Americans, gradually exploring a set of corresponding "operational" rules.

In the pool, there are idealists, opportunists, leeks, scammers, timid fish, arrogant lions, desperate wild dogs, and overnight rich crocodiles.

Everyone gathers because of their "spiritual homeland," and then splits because of "green dollars"; we sing off-key liberal anthems, eat chaotically seasoned decentralized hotpot, board the train worshiping totems of monkeys, bears, rabbits, and foxes, hurriedly fleeing a decayed order, learning new survival rules on the way to the next western wilderness.

However, adaptation is the beginning of progress and also the end of progress.

In this new rollercoaster-like crazy journey, will the "believers" of web3 leave behind a "beautiful new world" with Pak or BAYC?

Or more air?