It’s a kind of Magic

Usual disclaimers apply: this note is for informational purposes only and isn’t a solicitation to buy or sell any instruments. This is NOT financial advice – if you need advice, phone up your friendly private banker or financial advisor whom you pay good money to advise you.

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About 3 months ago, we wrote about the potential for new models of economics and governance to emerge as a result of the decentralisation brought about by crypto economics – particularly when applied in the context of games, the realm now known as the metaverse.

In particular, we wrote about a project called Loot (For Adventurers), which at the time made for huge degrees of excitement as the crypto community congregated around the idea of a bottom-up approach to building in-game worlds. Perhaps part of the excitement too was the fact that minting an entire series of NFTs no longer required having skills in graphics design, since Loot NFTs were simply white text on black backgrounds.

This led to the emergence of all sorts of “derivatives”: from colours to numbers, to randomly generated land and realms, to games that probably never even made it to minting a full set of character NFTs, and everything in between. By most measures, few of these projects could have been said to have “thrived” – most of them flopped the moment they launched, and while a few others have survived, surviving is hardly good enough.

One project, however, did stand out from the lot. And while it’s still early days in terms of its development, and eventual success far from guaranteed, the progress it has made so far – where so many others have failed – makes for an interesting case study in community engagement, fair distribution and precision execution.

Introducing the Treasure Project – better known these days as TreasureDAO, and by its native token, MAGIC.

Common ancestry, uncommon beginnings

Treasure, as it was known back then, makes no pretence in calling itself a Loot derivative. In its early days, it very much sought to fit into the Loot universe: where Loot represented bags of gear for adventurers in an unknown land, Treasure NFTs were bags of coveted treasures of varying rarity for use in this same unknown land of Loot and Adventurers.

Many of these NFTs have since been migrated to Arbitrum, where the TreasureDAO universe (more on that later) now resides, but many still remain on Ethereum, visible on OpenSea.

Like Loot, too, it was a free mint: players could mint bags of treasures directly from the contract for free, paying only the cost of gas on Ethereum at the time.

But the commonalities basically end there. While the Loot community became quickly embroiled in arguments about which variant of Loot was superior and what purpose AGLD (“Adventurer’s Gold”) was to serve in their universe, seeking to protect the privilege of the “original” minters of Loot against the inflation that came from additional mints like “more Loot” aka mLoot and others, the team at Treasure took their project down a very different route: inclusion.

Shortly after dropping the first batch of Treasure bags, the Treasure team very quickly realised that amidst the chaos happening in the world of Loot, there was an opportunity to build a community by engaging with the major Loot derivative projects at the time. The aim was much more ambitious than simply minting and selling NFTs: Treasure wanted to create a cross-project platform through which different NFT projects could interact, facilitated by a singular reserve currency for this nascent metaverse.

This currency came to be known as MAGIC.

How to make proper money

Minting a new token and giving it a name is easy. Making sure it lands in the right hands and allowing it to accrue value is a very different matter. One needs only to look at the graveyard of dead (or near-dead) cryptocurrencies left behind from multiple rounds of crypto mania to see that creating tokens and calling it “money” is the easiest part of the story.

The first step in Treasure’s approach to making new money was to make sure that the money landed in the right hands. As a result, a set of staking contracts was set up on Ethereum, allowing individuals to stake tokens in return for being given MAGIC for free. These tokens were: Treasure NFTs, MAGIC, MAGIC-ETH LP tokens, Loot NFTs, N Project NFTs, AGLD.

The winning move, in our opinion, was co-opting the communities that had sprung up around Loot/AGLD and N – arguably the two largest sub-communities of the Loot universe at the time – and giving the holders of these NFTs some sort of use case for their NFTs, keeping in mind that at the time they were generally useless aside from being used for bragging rights.

The reward for staking Treasure, Loot, Ns and AGLD was MAGIC. Notwithstanding MAGIC not having any tangible value at the time, at the very least it conferred some “use case” upon a set of otherwise useless NFTs. And as the emissions of MAGIC grew as a result of the staking rewards, disincentivising the dumping of mined MAGIC meant that more MAGIC had to be emitted as rewards for single-sided MAGIC staking as well as rewards for the provision of two-sided ETH-MAGIC liquidity on Sushiswap.

Lots of emissions, but not a lot of activity – at least that was what it looked like on the surface.

Nonetheless, one part of the mission had been accomplished: MAGIC was being distributed in a fair manner – not as a token sale, but as rewards for staking some tokens. Importantly, the supply of MAGIC was to be determined as a result of the outcome of the staking period: total MAGIC supply would equal 3x the quantity of MAGIC mined during that initial mining period, so it was not only the community of stakers which would determine future supply of the token, it was also a given that all stakers in the early stage of the project would collectively own 1/3 of total token supply.

If at this point it feels like something doesn’t make sense, you’re not wrong: up till this point, the team behind Treasure has received a grand total of $0. Treasure NFTs: free. MAGIC: free.

Lots given, nothing received.

And that makes all the difference.

Migration and flywheels

When the first blog posts and roadmaps for the project were published, they were somewhat thin on detail. There was to be a game of some sort, but given the costs of operating on Ethereum L1, a game would be impossible to launch with Ethereum as the underlying chain. Instead, the project was due to migrate at the end of the initial staking period to Arbitrum, one of Ethereum’s L2 rollups.

To incentivise stakers to keep their mined MAGIC staked and migrated, a set of rewards was offered: depending on the amount of MAGIC staked through the staking period, stakers would be given free Legion NFTs (yes, freebies again) which would come in useful when the game – slated to be a P2E game – was eventually launched.

Up till now, everyone (except the founders) who got involved in the Treasure project had been given freebies with zero risk and zero downside. No surprise then that almost everyone went along with the offer.

By the time migration day came along, 70-80% of MAGIC had been staked and locked for migration, with the majority of the remainder sitting in Sushiswap LP pools to provide liquidity for stragglers. A grand total of around 115m MAGIC was mined in that initial period, and the magic (no caps) of bootstrapping value led the market to price MAGIC at around 4c each.

Migrating to Arbitrum was strategic for multiple reasons: for one, Arbitrum was faster and cheaper, while remaining closely tied to Ethereum as its underlying layer, meaning the vast amounts of capital sitting on the main Ethereum chain along with its credibility was always within reach for any project on Arbitrum. Moreover, Arbitrum at the time was generally empty: a blue ocean which was protected from competition in the NFT space by one tiny (but critical) technicality.

NFTs couldn’t be bridged.

What does this mean? With fungible ERC-20 tokens, moving value across chains was straightforward (in principle, at least, since the technical details are much more complex): to move for example ETH from the Layer 1 mainnet to Arbitrum, a certain amount of ETH would be deposited in a bridging contract, and a corresponding amount of new AETH (Arbitrum ETH) would be minted on the other side and credited to the user’s wallet.

So, it’s not really “bridging” as much as a “back-to-back” transaction, and because the tokens are all fungible, they are effectively the same thing.

Not so for an NFT, since a “copy” of a non-fungible token on the other side of the bridge is necessarily NOT the same thing.

This was an important detail, because that meant that all of the supply of failed NFTs sitting on Ethereum’s mainnet would be kept away from the Arbitrum system, allowing everyone to start afresh. Even more important was the fact that a marketplace like OpenSea would have absolutely zero advantage on Arbitrum since its inventory would not be transferable to the new chain.

Just weeks after Treasure’s migration to Arbitrum came the first big reveal: the development team had spun up an NFT marketplace on Arbitrum, where the transactional currency for buying/selling NFTs and paying fees was none other than… MAGIC.

In one masterstroke, Legions and Treasures immediately had the chance to establish a market value for themselves. And MAGIC became a currency.

As an aside, MAGIC was also one of the first projects on Arbitrum to partner up with OlympusPro – we wrote about Olympus a while back, and that same ability to manage and control protocol token liquidity further underpins the ongoing liquidity in MAGIC. It doesn’t guarantee “up only”, but at least in a down move, the buyer of last resort is TreasureDAO itself.

But a marketplace for a single project was a far cry from the team’s stated goals for MAGIC: that MAGIC would become the currency of as large and broad a metaverse as possible.

For many, the approach would typically be to try and invite new projects to list on the marketplace, providing incentives for them to do so. Not so for the Treasure team, who at this point had still not taken a single cent of external revenues, other than the new marketplace revenues, and were demonstrating themselves to be a highly resourceful and efficient team.

Sitting and waiting was not to be the way. Instead, they replayed the same playbook as with Legions: more free mints, this time of hilarious, comical projects like Smol Brains (monkeys with heads that can grow as their gain IQ), Smol Bodies (pixel art bodybuilders), Life (NFTs that grow from being babies to adults – think tamagotchis) etc. The strategy was again nothing like the cash-grab of other projects that sought to get paid early – in this case, users had to “work” to get a spot on the whitelist for a free mint: draw a simple picture of a monkey, participate in a quiz, post a picture – whatever it was, it didn’t involve paying any money.

What this achieved was create vibrant communities around these NFT projects, all of which were linked to a single marketplace, bringing the most important thing a marketplace platform needs: critical mass.

As it stands, just over 50 days since the Treasure marketplace has been launched, the marketplace treasury contract holds just over $4.6m worth of MAGIC (1.7m MAGIC at current market prices). Even considering how the price of MAGIC has appreciated significantly from the 4c post migration, this has still been a remarkable feat with only a handful of NFT collections listed on the marketplace.

Transition to TreasureDAO

Soon after the migration to Arbitrum was complete, the development team promptly handed control of the DAO to the community. An initial proposal to grant 1/3 of the token supply to the team as a fund for covering their expenses up till then was passed with an overwhelming majority – this was the first time ANY tokens at all had been allocated to the team, and in return for their generosity since inception and the value created for the community from their work, there was little reason for anyone to reject the proposal.

The success of the marketplace and the astuteness of the team’s strategy also drew in an initial investment round led by 1kx of US$3m, bringing in key investors like Blackpool, Merit Circle and even Axie Infinity’s Jiho to the project.

So far, the willingness of the team to put community before self has paid off massively. As a bonus, the rate of delivery so far has been outstanding: a minting contract, a full set of NFTs, two sets of mining contracts, and an initial rendition of a game (expected to be basic in its first instance), an NFT marketplace and a small collection of accompanying NFT projects to kick off a flywheel for their ecosystem. The checklist is impressive.

From here, the onus remains on them to deliver a roadmap that is credible and well adhered to, a game that is entertaining, engaging and rewarding (recognising that games take a long time to develop, we’d expect this to come in stages) and continued efforts to integrate with more and more metaverse projects to deliver on their plans to make MAGIC the currency of the metaverse. The edge that they have from NOT being first is that they can learn from the mistakes and challenges of their forebears: affordability and cost to start playing, the risk of rewards systems being gamed, the lack of multiple routes to in-game revenue generation, imbalances in the market, overloading servers etc – in many cases the team appear to be learning from the mistakes of their predecessors and taking pre-emptive measures against these same flaws.

As it is in tech, so, too in crypto gaming – being first is a tough, albeit greatly admired, position to be in. Not having a game live (yet) means there are no gamers to offend with tweaks, no vested interests that may be violated, giving the team free rein to build off the learnings of others.

Of course, for an early stage investment like this, risks are abundant. Will Arbitrum be good enough, fast enough and/or cheap enough? Will the game be accessible enough for the low-income audience to which most P2E games are addressed? And perhaps the greatest risk is that having asked all of these questions and found the answers, the quest for perfection becomes the enemy of the good, leading to lots of planning and very little doing.

But for the moment, this team seems to have mastered the magic touch, enhanced by what seems to be a genuine desire to build something that benefits the community as a whole. They have delivered at breakneck speed, outpacing many projects that started before them in terms of progress in development, community engagement and adoption.

So far, their actions speak strongly in their favour, and their community, now more than 22k members strong in their discord group, appears to agree. Already, we see sub-DAOs (echoing the model proposed by Yield Guild) popping up within the community, with guilds organised around 5 super rare 1/1 Legions that were raffled out to community members. These community-led guilds have also taken it upon themselves to spread the world – one of them, ClocksnatcherDAO, most recently published an excellent piece feature an interview with one of the co-founders of TreasureDAO, John Patten, which is found here.

One quote from that Q&A from John probably sums up how differently TreasureDAO is approaching the task of building a metaverse:

“We have been pursuing a sort of unpopular thesis, which is that the metaverse is a story that communities write together rather anything about gaming or graphics. These projects that are handing down these glitzy, 3D video games to their communities… I don’t agree with that strategy. A decentralized metaverse gains value because people put work into producing it, not because they pay for it. “

Maybe that in itself is a kind of Magic.

Edward PlayfairJanuary 14, 2022