Exploring NFT Economies: Creators, Collectors, & Collection Sizes.
lmao, these stock images for NFTs are hilarious. yes, I spent $10 on this. 😂
With NFTs blowing up, there's been quite broad experimentation regarding pricing, sales, auction formats, and collection sizes. What an NFT is supposed to represent (from art to virtual real estate) can be quite broad, but regardless of that there still exists interesting tensions between the creators, collectors, and the size of collections. These tensions aren’t new. I can bet that the trad art world, trading card game designers, sneaker designers, and many in-between have given these questions some considerable consideration before. What’s new with NFTs is that 1) the asset lives on the same substrate as where the auction/sale occurs, and 2) we have native, beautiful, open source data to dissect.
While I have written before about collection sizes (and designed a new implementation using bonding curves), I want to delve a bit further into these tensions: the creator vs the collector, and collection sizes.
Creators vs Collectors
Some artists choose to mint 1 of 1: only one of it will ever exist. You see this on platforms like SuperRare or Foundation.
On platforms like HicEtNunc, creators create large collections of the same image and sell a certain amount until a certain time, and then burning/deleting the rest.
In Profile-Picture (PFP) NFT projects like Bored Ape Yacht Club, Hashmasks, Meebits or generative art projects like Neolastics, they experiment with price floors (same price for all variations), fomo ramps (increase in price with each one sold), bonding curves (some funds are kept in a reserve, offering liquidity for those who want to sell), modified dutch auctions (price to buy one decreases over time).
BAYC choosing to sell at a fixed price, proclaiming that fomo ramps or bonding curves are ponzi schemes.
Hashmashs FOMO Ramp: First 3000 cost 0.1 ETH each. Last 3 cost 100 ETH each.
Neolastics (my project), showing an uncapped supply grow and shrink through a bonding curve. ht: https://duneanalytics.com/drethereum/neolastics_1
On the auction side, platforms like Mirror, Foundation, and ArtBlocks experiment with variations like a timed 24 hr auction after reserve is met (Foundation), Patron Podium, where top 3 bidders receive an NFT (Mirror), or where a collection is sold at a set price but with each piece varying slightly (ArtBlocks ).
A 24hr auction started when a reserve is met. https://foundation.app/@probzzzz/x-61837
A Patron Podium auction on Mirror. Top 3 bidders receive a unique NFT. https://ethereumfilm.mirror.xyz/3SV8gLXHIW8Ot45h3RL7aOgDINxN2hjLfFVOvyatB2A
ArtBlocks Fidenza. 999 variations. https://artblocks.io/project/78
The Tension
Currently, especially in PFP NFT projects (like BAYC or Stoner Cats), a collection usually comprises of several thousand pre-generated variations. A common discontent one hears is that collectors don't like 'bonding curves'. That is a misnomer when it entails a fomo ramp. The premise is simple: with each new one sold, increase the price. The 10,000th one will cost a lot more than the first one. Part of the goal is to create 'fomo' among collectors to buy one before the price goes higher. Alternatively, it's also a way for the creators to capture more value. With more demand, the creators earn more.
However, and here is the tension. Collectors like it when they get it cheaper, at a consistent price, because then they themselves can put in the work to increase its value. Thus: the potential upside is higher, and the time investment brings forth more of a commensurate return. That's why projects like Punks & BAYC have big communities building additional "expansion packs".
PunkBodies (a CryptoPunks unofficial expansion pack). Expanding your punk with a body. https://opensea.io/collection/punkbodies
In doing so, they are co-creating the shared universe together. Notably, despite being one of the first PFP NFT projects, CryptoPunks, most of the value wasn't captured by Larva Labs (the creators). Later, they did, by selling some of the ones they still had, but most of the value isn't held or captured by them. A community can only help create & invest their time into the collection if there’s room for growth. The feeling is that, if the initial sales are too high then the community won’t as readily succeed in imbuing it with their attention and expansions. There’s a feeling of wanting a fair ‘entry’, which means that it should ideally be priced for access + not one being priced higher than others.
It makes sense. Even in the trad art world, the right collector can sometimes add more value than the creator and in certain cases deserve the commensurate value of their contribution (eg, getting it into the right exhibitions or promoting the work). While the tension between disinterested speculators and true, joyful, collectors will exist, catering towards the collector in general, I believe is generally advantageous at this stage of burgeoning industry.
We don’t want speculators to capture most of the value, which is unfortunately what sometimes can happen in auctions where legitimate fans are priced out in gas wars, nor do we want creators to be underpaid. This is unfortunately the case when a platform like ArtBlocks succeeds. Most of the value goes to Ethereum miners in gas fees + speculators flipping their buys. They’ve since changed it and aiming to experiment with Dutch Auctions and other variations.
ArtBlocks buyers failing to purchase a new release and losing money to gas fees - https://twitter.com/dan_OpenSea/status/1417169065655865350.
That being said, NFTs do provide unprecedented opportunity for collectors to add value in ways that wasn’t possible before with more traditional forms of collectibles. There’s a newfound sense of ownership that exists independently of the creators. This is particularly the case with NFT projects where ALL the features exist on-chain, and does not rely any creator to continue serving media or files.
My project’s Anchor Certificates where the images + metadata exist entirely in the blockchain. http://tlatcnfts.untitledfrontier.studio/
Playing towards the collectors at this early stage means that one can participate in the potential emergent benefits this ecosystem could provide. If push comes to shove, creators can opt to (try to) collect royalties from any future resales, which in the end becomes a win-win. Creators when collectors win. I am bit biased in that sense, in general, because I believe most creators benefit from publishing more in general. This is repudiated by data. Even in the NFT realm.
Which brings me to the next tension: collection sizes.
Collection Sizes
This one is still the most interesting tension for me. How large should a collection be? This goes for editions that are similar (eg, Nifty Gateway Open Editions or HicEtNunc sales) and it goes for generative art projects (like ArtBlocks) & PFP NFT projects (how many characters should there be)? Previously when I wrote on this topic in June 2019, I proposed that real bonding curves is a way to solve the problem. I've since built Neolastics that experimented with this.
That being said, while uncapped & dynamic supply is one option, not all creators or collectors want to own a piece that is a part of a growing and shrinking collection.
So, how does one choose the amount to sell? In HicEtNunc sales, it's been ad-hoc, where creators would just cap it at a number like 10,000, allow people to buy any amount for cheap, and then later on burn the rest of the supply. Most PFP NFTs stick to a number around 10,000 because, hey, that worked for CryptoPunks, so it makes sense that one should also do 10,000, right? (Tangent: it reminds me of start-ups with 1 year cliff + 3 year options. Someone did it, and now it just stuck). Questioning these parameters is what I enjoy dissecting.
As previously mentioned in a previous post, there is a tension in collection size. The larger the collection, the more people can own a piece, bringing value to the entire collection. Make it too small, and you might leave money off the table, by limiting the amount of people who could own a piece.
x = size of collection, y = max value of collection
Besides using uncapped supply bonding curves, there's a recent proposal that solves this tension in a capped auction. I believe this model works extremely well and should be tried. It's called a MATT auction, first proposed by Dan Finlay. It also, smartly plays into the creator vs collection tension: trying to satisfy both.
The auction itself determines the size of the collection such that it maximises revenue for the creator & mints enough pieces to satisfy collectors. Starting from the highest bid, it checks whether the next bid at that price would result in a net gain for the artist. If so, another piece is minted/created.
In simpler terms, using bids as an example:
A bids $100 for the NFT.
B bids $90 for the NFT.
C bids $80 for the NFT.
D bids $1 for the NFT.
The auction process starts with bid A:
- if all bids (only 1 at this point) are at $100, then the artist earns $100. This is more than zero if no bids existed, thus, bidder A is guaranteed a piece.
Now the auction process checks Bid B and asks:
- if all bids (2) were $90, then the artist would earn $180. This is more than $100, thus bidder A + B is guaranteed a piece.
Now the auction process check Bid C and asks:
- if all bids (3) were $80, then the artist would earn $270. This is more than $180, thus bidder A + B + C is guaranteed a piece.
Now the auction process checks Bid D and asks:
- if all bids (4) were $1, then the artist would earn $4. This is less than $270, thus, bidder D does not get the piece.
The auction process ends and bidder A + B + C pays $80 each to get an edition of the NFT.
It maximizes revenue for the artist and mints exactly enough in the collection to retain a capped supply. It doesn't give any flexibility for the future (as with uncapped supply editions), but it satisfies those creators and collectors that desire a finite supply of editions while still ensuring that the creator earns, and the collectors are left with an optimal collection size.
Prints?
You might think that perhaps it ends there. But. Surprise. It gets even broader. The potential is still so broad. EulerBeats experimented with prints, which might be a different kind of resolution for these tensions. A 1 of 1 exists and collectors can choose to mint a print, with pricing being automated on a bonding curve.
EulerBeats, allowing a 1 of 1 to exist and having more collectors be able to own a print on a bonding curve.
With the space growing so rapidly, I’m sure I missed out interesting explorations (eg, what even does one do regarding NFTs that can ‘breed’, ‘mutate’ or spread like a virus?). If there’s interesting projects, please share!
Conclusion
We’re nowhere near the potential exploration space for NFTs. Seeing it all play out live with various projects experimenting with different models, we can see the tension play out between creators, collectors, and collection sizes. The data is all right there, ready to be crunched and explored. It’s a certainty that the industry would look different 5 years from now!
Excited for the new auction mechanisms to be explored, new projects to patronage, and peace to broker between NFT PFP project alliances. ;)
