Do We Need a Better NFT Issuance Model? VRGDA Explained

Do We Need a Better NFT Issuance Model? VRGDA Explained | TKX Weekly

2022-09-18 03:01

TKX Capital

2022-09-18 03:01

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by @Guaaronnnn
editor @FriedWagyuu

Part I. VRGDA — Variable Rate Gradual Dutch Auctions

VRGDA (Variable Rate Gradual Dutch Auctions) is an experimental NFT issuance model designed by Paradigm, which will be first tested on the NFT project Art Gobblers. VRGDA allows projects to sell NFTs close to a custom schedule over time by raising prices when sales are ahead of schedule and lowering prices when sales are behind. VRGDA is far more complicated than the traditional NFT distribution model — mint at a fixed price. But, we will make it simple.

What’s the Problem Currently

As we know, most of the 10k PFP projects issue all their supply at the launch. However, this issuance model leads to an imbalance of supply and demand — either oversupply or undersupply, which are unhealthy for both the buyers and the NFT project.

Wait, What is GDA?

Before diving into the detail of VRGDA, it is important to understand Gradual Dutch Auction (GDA) first. In short, GDA works by breaking up a sale into a sequence of Dutch auctions.

For example, Gua would like to sell a collection of 10k NFTs. In a traditional Dutch auction, the price drops at a fixed rate, which incentivises the buyer to wait and FOMO without enough time for price discovery. With GDA, he can auction off one NFT at a time, which gives buyers enough time to determine the price of the whole collection.
Along with GDA, Discrete GDA and Continuous GDA were proposed. Discrete GDA allows the batch purchase of NFTs and Continuous GDA is more suitable for FTs with an emission schedule.

Built on top of GDA, VRGDA is a generalization of GDA that allows arbitrary scheduling of NFT issuance, which offers more dynamic price discovery as opposed to the uniform scheduling of standard GDAs.

Event 01: Undersupply

Many NFT projects are good at creating hype and building high expectations at the beginning of the project. Once a project becomes popular and everyone talks about it, it attracts speculators and flippers who make the NFT price unreasonable high before the team starts to execute the roadmap. Then, speculators and flippers make a profit by dumping the NFT on the people who FOMO in and leave. Price drops sharply, and people who love the project get hurt. On the other hand, the team might get less motivated to execute the road map, since they already made a good fortune in such a short period.

Event 02: Oversupply

Some good projects have an excellent team with small communities who love their idea. But the one-time issuance model causes oversupply which leads to a low price of NFT or even leaving NFTs unminted. Both ways will largely discourage the motivation of the team and community. Plus, the funds from minting might not be enough to support the team to execute the roadmap, which lead the project to death.

How VRGDA Comes into the Picture

Let’s say a simple schedule where we want to sell 10 NFTs per day. We set a starting price of 1 ETH for the first NFT. After 5 days, we should have sold 50 NFTs. However, the demand has been high, and we have sold 70. But we know that we only need to sell 70 NFTs on day 7, so we are two days ahead of schedule.

As a result, we want to charge a higher price for the undersupply. So an exponential curve to determine how much higher is introduced. The curve can vary based on parameters, but in our case, we use 2^(days ahead of schedule). Thus, we increase our price by a factor of 2² = 4 ETH. Since our initial price was 1 ETH, the new price will disincentivize buyers to buy more.

Then, ten days later, on day 15, we should have sold 150 NFTs, but users only bought 120. The oversupply makes us three days behind schedule. So, we adjust the price to 2^-3 = 0.125, incentivize users to buy more.

Application and Advantage

For NFT projects with limited supply, VRGDA can be applied to make a logistic issuance schedule. The supply rate grows quickly in the early stage and starts to slow down at the late stage, enabling the price to be fully discovered like with a traditional market maker.

The advantages of the VRGDA logistic issuance model are:

Scarcity: just like BAYC, people like to collect NFTs because of their scarcity. Those finite supply NFT projects can create social status and community attachment for their owners.
Balance of Supply/Demand: VRGDA solves the oversupply and the undersupply issues. With price adjustment, speculation activities will be minimized. The founder team can also raise enough money to execute the road map. Communities usually expand quickly at an early stage and grow slowly later, logistic schedules fit the curve of the community growth.

Final Thoughts

VRGDA logistic issuance model can be used broadly in NFT projects and gaming projects. Balancing the supply and demand, and aligning the supply more closely with the expected demand of the real community. VRGDA will lead to more sustainable and healthy development of NFT projects.

Part II. Market Updates

The Ethereum Merge Is Done, Opening a New Era for the Second-Biggest Blockchain
The massive overhaul of Ethereum known as the Merge has finally happened. It was no small feat swapping out one way of running a blockchain, known as proof-of-work, for another, called proof-of-stake.

FTX Is in the Lead to Buy Crypto Lender Voyager Digital’s Assets Out of Bankruptcy
FTX is in the lead to buy the assets of Voyager Digital, the cryptocurrency lender whose bankruptcy filing deepened this year’s industry crisis, according to a person familiar with the matter. An auction was held this week through bankruptcy court for Voyager’s assets. At the final stage it was a battle between billionaire Sam Bankman-Fried’s FTX exchange and Wave Financial, a digital-asset investment firm, according to the person.

Vitalik Buterin Says Ethereum Merge Cut Global Energy Usage by 0.2%, One of Biggest Decarbonization Events Ever
The Ethereum Merge lowered the world’s energy consumption by 0.2%, marking what may be one of the single biggest decarbonization efforts in history. The overhaul cut Ethereum’s energy use by 99.988% and carbon-dioxide emissions by 99.992%. The decrease means the network now spews out less carbon dioxide (CO2) than a few hundred U.S. households do during a full year of electricity use.

South Korean Court Issues Arrest Warrant for Terra Co-Founder Do Kwon
A South Korean court has issued an arrest warrant against Do Kwon, the co-founder of the now defunct stablecoin issuer Terraform Labs, according to the financial crimes unit of the Supreme Prosecutors’ Office.

Wall Street Titans’ New Crypto Exchange Aims to Seriously Cut Costs for Investors
The firm, EDX Markets, is backed by the two largest U.S. retail brokers, Charles Schwab (SCHW) and Fidelity Investments (through its digital-assets arm). Citadel Securities and Virtu Financial (VIRT), two of the biggest trading firms in U.S. stocks, and investment firms Paradigm and Sequoia Capital are also supporting the venture, and EDX expects others to join the group. It will initially focus on only a “handful” of tokens including bitcoin (BTC) that its lawyers are confident aren’t securities.

Part III. Fundraising News

Magna — Token management platform
Raised $15M in a seed funding round at $70M valuation led by Tiger Global and Tusk Venture Partners. Investors include Shima Capital, Circle Ventures, Solana Ventures, Polygon Ventures, Avalanche Labs and Galaxy Labs.

Arpeggi Labs — Open-source music creation startup
Raised $5.1M in seed funding round led by a16z crypto. Investors include confirmation, Palm Tree Crew, WndrCo Ventures, Steve Aoki, 3LAU and others.

Revolving Games — Web3 Game Studio
Raised $25M in seed funding round led by Pantera Capital. Investors include Animoca Brands, Polygon, Dapper Labs, Kenetic and DWeb3 Capital.

Goldsky — Crypto data infrastructure platform
Raised $20M in a seed funding round led by Felicis and Dragonfly Capital. Investors include Elad Gil, Uniswap Labs, 0xLabs and Protocol Labs.

Doodles — NFT maker
Raised $54M in a funding round at $704M valuation led by Seven Seven Six. Other investors include Acrew Capital, FTX Ventures and 10T Holdings.