NFTs, short for Non-Fungible Tokens, have been all the rage lately, with the likes of Mark Cuban and Chamath Palihapitiya endorsing them. Without a doubt, these count towards the most interesting facets of the crypto universe; the recent phenomenal success of the Hashmask project deserves a closer look. But first:
What are NFTs and why should I care about them?
NFTs are the crypto equivalent of collectible items in the real world — think art and Pokémon cards. While they have intrinsic value, they are indivisible: Similar to how a Vincent van Gogh art piece could be worth $100 million, but could not be split into fractions the same way $100 million cash can be portioned in dollar bills. Additionally, collectors can claim ownership of NFT by publicly verifiable blockchain records. So even though the same piece of digital art can be viewed by everyone, ownership is exclusive — just like how original rare art pieces can only belong to one owner.
NFTs have been around for a long time, with 2017’s Cryptokitties being the most well-known application to date. Just like every other aspect of crypto, NFT projects have come a long way in sophistication and design. The Hashmask project’s shot to fame shocked many. The “living digital art collectible created by over 70 artists globally” sold out within one week, and raised $13.4 million for its creators.
How did Hashmasks become the top NFT project on Ethereum?
Two words: master execution.
- Perceptions of Scarcity: During pre-sale, a limited supply of 16,384 masks were sold on a bonding curve, where mask prices were valued based on the amount masks had been priced prior. Buyers also did not know which mask they would be getting, and how rare it would be. This created tremendous scarcity — or the illusion of it — in buyers’ minds. With scarcity comes…? You guessed it: overwhelming demand.
- Perceptions of Value: Just like Cryptokitties, the masks had superficial rarity traits, such as eye, skin color, and so on. However, post-mask unveiling, the Hashmask community found unannounced traits in their portraits, such as randomly placed black dots or Chinese words. This added another layer of rarity that the community is still discovering in real-time today.
- Gamification: Designers of the project intended for community participation to extend far beyond pre-sale. With ongoing discussions of previously unknown rarity traits, creators have effectively designed a game for their community — making the Hashmask experience fun.
- Investment: Each Hashmask produces Name Changing Tokens (NCT) continuously, which are fungible and can be used to change a portrait’s value. This effectively pegs every Hashmask’s floor value to its “dividend” of NCT produced each year and adds a dimension of value for each Hashmask buyer.
A) Some NFTs are more equal than others
The Hashmask project has raised the bar for upcoming projects by combining elements of a speculative ICO, NFT collectible, and liquidity mining all-in-one. While NFT project hype comes and goes, the project has embedded longevity by extending its shelf life, through community hype, beyond pre-sale.
B) Mania indicator?
NFTs also experienced similar hype during 2017’s bull run, which leads one to wonder: If Cryptokitties marked the late phase of similar hype during the 2017 bull market, could Hashmasks be the harbinger for this 2021 counterpart? Since NFTs represent the most illiquid segment of the crypto asset class, significant capital deployed here tends to be a signal of overheating market sentiment. Curiously, just like in 2017, the timing of CME futures listings also occurred around NFT mania periods. Coincidence or providence — you decide.
C) Hashmask yield farming
The Hashmask project essentially offers “yield farming”, which is not dissimilar to DeFi protocols. By owning Hashmasks and their associated NCT issuances, buyers are being bullish on the project’s prospects by investing in its cash flows.
Valuation-wise, since each Hashmask produces 3,660 NCTs annually for 10 years, at the current price of $0.15 per NCT, each Hashmask should theoretically be worth at least $5,500. With the average bid sitting around $700-900 on non-rare Hashmasks at OpenSea, there’s a clear discrepancy between market prices and the lifetime NCT issuance. The unlikely alternative here is that Hashmask market prices are priced correctly, and NCT tokens instead are overvalued. If true, this would then imply lower NCT prices in the long run.
Hashmasks are certainly one of the most interesting projects within the NFT space today. Astute investors in the space would be doing themselves a disservice by ignoring such NFT projects. Could this be just the beginning of a digital collectibles era, or will these be relegated in the annals of history as mere bubble phenomena? Only time will tell.