NFTY #55: The Case for On-chain Affiliate Fees

What does it mean when you can programmatically split fees with multiple parties forever?

NFTY tracks the ever-evolving narrative of how mainstream will enter crypto through user-facing applications. In each edition I explore dApps, games, and the ecosystem affecting consumer crypto applications.

Many crypto-native projects have added or are considering adding affiliate fees baked into their own smart contracts over the past six months. While on-chain affiliate links have the potential to increase liquidity in a more transparent way, many individuals believe it won’t help drive mass adoption for on-chain markets.

To date, composability and the incentives to use existing contracts are drastically outweighed by creating new markets & tokens. There has been a handful of attempts by exchange products like OpenSea and 0x Instant to enable referral/affiliate based rewards inside of exchange contracts. Some have pointed out that the introduction of affiliate rewards in these platforms have not seen a dramatic increase in the amount of total transaction volume and liquidity in these markets because of the baseline liquidity not being there.

Say we were to reach a point where liquidity on decentralized exchanges hits a point where volumes are rivaling centralized exchanges. What would separate the investment of new money into on-chain markets vs. tokens? On-chain affiliates may be the answer. Here are a few ways this can potentially shake out.

Social capital to flow from tokens to markets — while many content creators have been notoriously known for increasing demand for new tokens, NFTs on OpenSea and soon markets on Augur will possess an opportunity. As user experience and education improves, it would make it easier for the average consumer to invest in markets on-chain as opposed to exchanges. With Augur V1, it used to be that only creatives benefitted with coming up with the “perfect market”. Now investors can add long-term Augur V2 “markets” to their portfolio.

On-chain bounties are transparent — on-chain affiliate means on-chain, transparent data for everyone to see. Instead of donations and Patreon being the preferred method of monetization for creators, perhaps they would point to markets which offer affiliate rewards.

Composability encouraged — While Veil was primarily focused on creating their own markets, there was no upside to let users permissionlessly create their own markets (Veil created new markets based upon requests, creating too many markets would spread liquidity thin). Now, new overlays would be encouraged to highlight and funnel users into existing markets in order to generate affiliate fees.

I’ve noticed this trend starting to develop in Q4 of 2018. I wrote about the concept of “on-chain curation”. Instead of news sources following price movements, content would be incentivized to drive liquidity to specific markets.

Future curators will be reporting on markets rather than news. Affiliate fees will be taken at every inch in the market. This creates an entirely new effective way to convert attention to liquidity, something that a lot of native-crypto markets currently lack — NFTY #29

Disclaimer: I work on helping create a world of infinite possibility at Dapper Labs. All opinions are my own and don’t represent the opinions of Dapper Labs.

NFTY #54: Designing for composability

Designing for a good developer experience is proving to be more successful

The NFTY News tracks the ever-evolving narrative of how mainstream will enter crypto through user-facing applications. In each edition I explore dApps, games, and the ecosystem affecting consumer crypto applications.

I’ve been having the summer slowdown and haven’t been publishing each week. I hope to get back into the swing of things from here.

Many of the most popular decentralized applications today are products built for developers rather than users. The applications that design for users tend to struggle to attract users and undermine decentralization in order to create a better user experience. But even with the user experience improvements, the products built for developers have a higher total amount of volume passing through the contracts over user-facing dApps.

This is because third-party developers are creating the features & content for applications with composability. In the same way that Minecraft & Roblox became successful from user-generated content and third-party creators, so will many of the most popular decentralized applications today. Dapps that are built as closed ecosystems will have a difficult time finding product-market fit with the increasing amount of substitution products that exist with a similar value proposition.

The puzzle analogy

Everyone in the DeFi community likes to use legos as the metaphor for composability. I see composability more as a puzzle. Pieces can be designed in multiple ways:

  1. One connecting side only (usually user-facing and not developer-facing, like Dharma)

  2. Two or three connecting sides (usually a middleware protocol like Compound, Uniswap, or 0x)

  3. Infinite edges (Coinbase Earn, InstaDapp, Coinmine)

If more dApps are built with composability & open ecosystems in mind, we’d start to build a larger puzzle with more possible edges. When puzzle pieces are latched onto existing pieces, they are deemed more innovative but with less upfront work to build.

We’re currently in the stage of trying to create these one-sided puzzle pieces (What can we build on top of Compound? What can we build on top of Uniswap? What can we build on top of Cheeze Wizards?) We must start looking outside the box to build even larger puzzle pieces.

Developer-focused applications and plug-and-play models have been most successful so far. Here’s a dive into the five products that I think are doing the best work on this front.

1) Compound - the building block for developers

Compound is designed as a puzzle piece with four edges, allowing developers to plug into it in multiple ways. This gave rise to products like PoolTogether, a no-loss lottery. Since launching V2, Compound has seen more growth than any other middleware protocol, with seven different projects using Compound's contracts to allow users to earn interest by supplying their digital assets.

Compound’s interest could also be a fascinating way to pay for gas in the future (supply DAI in a smart contract wallet and get x free transactions per month based upon how much borrow power you have).

2) CoinMine - plug into any protocol and deploy funds anywhere with low-risk

I talk about Coinmine a lot on this blog - but there's something magical about being able to earn without any risk and then being able to deploy in contracts and potentially earn more. Coinmine sets itself up as a way for any user to enter risky contracts with low perceived financial risk because the money already being made is peanuts. Coinmine users can instantly turn their mined ETH into DAI and supply it on Compound to earn more interest.

If Coinmine integrated PoolTogether, Coinmine users can basically mine for lottery tickets. The way the app is designed is for the end-game - for any content to be created and for users to take advantage.

3) InstaDapp - plug into any contract and design features around market conditions

InstaDapp isn't really much of a dApp - it's more of a portal interface. The interface is designed in a way that allows InstaDapp to plug into other contracts rather seamlessly. Since creating the bridge between MakerDAO and Compound, the total amount of ETH has grown quite substantially.

There are a handful of mobile wallets trying to design for decentralized finance interactions (Zerion, Rainbow, Ambo) but if you look closely enough, InstaDapp already has a clear advantage by 1) not focusing on wallet infrastructure and 2) not having to deal with Apple. The focus on being a portal gives the team more flexibility and freedom rather than giving users basic wallet functionalities. A long-term path for InstaDapp is to recommend what contracts the user should interact with based upon fluctuating volatility in price or APR rates.

4) Cheeze Wizards - developers have a sustainable way to build on top of core experiences

Cheeze Wizards is a tournament game run entirely run on-chain, exposing itself to many great benefits including the ability for developers to build features around the game. Developers can spin up their own tournaments using the tournament smart contract and receive a portion of the amount raised.

As more experiences are built on Cheeze Wizards, the easier it would to deploy a tournament and start getting users to contribute - this is a benefit of being on-chain as opposed to using a second-layer scaling solution.

5) Coinbase Earn - distribute & deploy to millions

Coinbase Earn is designed for the end-game. Jacob Horne wrote last year that we are entering the utility stage of crypto, a step up from the speculating stage. Coinbase Earn has found product-market fit for the utility stage:

Similarly to how Coinbase was part of every go-to-market plan for ICOs, Coinbase Earn will be part of many dApps/smart contracts in order to achieve critical mass.

The one part that’s missing for me is how these dApps will incentivize the users of Coinbase Earn without a token of their own. It worked well with MakerDAO because of the design of DAI. I guess this is a problem for Coinbase to solve in the future as they hope to court more tokens with utility.

Disclaimer: I work on helping create a world of infinite possibility at Dapper Labs. All opinions are my own and don’t represent the opinions of Dapper Labs.

NFTY #53: RecRoom's crypto opportunity

RecRoom is a tool for creatives disguised as a game for users

The NFTY News tracks the ever-evolving narrative of how the mainstream will enter crypto through user applications. In each edition I explore dApps, games, and the ecosystem affecting consumer crypto applications.

I've been playing a lot of Rec Room recently on the Oculus Quest. I've had my doubts when I first looked at the game, but there's something about this game that kept drawing me back in. I couldn't figure out what it is. After a week or so on the game, I started noticing how much of the game revolves around user-generated content.

Way more than other games.

The Rec Room team doesn't release much new content. Instead, they created a virtual playground for creators to create the content. Most of their own marketing content is spent around educating users on how to create rooms. Check out some of these rooms that have been built recently:

It’s been working out pretty well. They just raised a whopping $24M in funding from Sequoia and other big names.

RecRoom’s crypto opportunity

Against Gravity (The Rec Room team) doesn't plan to monetize aggressively through micropayments similar to Fortnite. Instead, they want creators to monetize their own user-generated content, which would open up some opportunities for Against Gravity. Because VR makes it easy to create virtual environments as opposed to other level creators (ie. Minecraft or Fortnite Game Creator) creatives are already likely to come tinker in RecRoom. Last week we saw Coil get implemented on Imgur, using Interledger Protocol (XRP) for micropayments to creators. Forte started a fund for games to do this earlier this year. It wouldn't surprise me if Against Gravity took a similar route.

By building a tool for creatives disguised as a game for players, platforms like Rec Room unlock an enormous amount of potential. Take Minecraft as an example. The game itself didn't have much content for players, but it was modular enough to have a creative community extend the life of the game infinitely and allow the game to sell even more copies. Communities were built from the creatives & evangelists.

Social networks are becoming games while games are becoming social networks… but both approaches require trust.

There's a clear trend emerging: platforms are giving creators the tools to create content for players. Platforms don't want to be rent-seeking because it saps the trust from the community. Just take a look at why Fortnite acquired Houseparty and started working on a social network app. Everyone jokes around that GenZ understands Vbucks way more than the traditional banking world, and RecRoom has the opportunity to create a Metaverse that ties trust together with creators & players alike.

Disclaimer: I work on helping create a world of infinite possibility at Dapper Labs. All opinions are my own and don’t represent the opinions of Dapper Labs.

NFTY #52: dApps, not apps

Should users of crypto-applications understand what they're using?

The NFTY News tracks the ever-evolving narrative of how the mainstream will enter crypto through user applications. In each edition I explore dApps and the ecosystem affecting consumer crypto applications.

It’s becoming increasingly clear over the past year that many in the community believe that all decentralized applications should look like regular applications of the web today. Many projects have been moving to full-stack user experience solutions (keys & gas natively-integrated into the user experience) in order to appeal to users outside of the crypto community. DLive and Voice immediately come to mind as examples.

While dApps like Dharma are positioned to do this, the majority of dApps should not seek to re-create their own full-stack user experience solutions. If they do, the majority of users will think they’re playing with money in a closed ecosystem as opposed to an open ecosystem. Additionally, the habit pattern of using a Chrome extension/mobile wallet is drastically different than a full-stack solution, and can hurt the wider ecosystem if dApps create user experience solutions for their own benefit.

Compound is a great example of creating an open ecosystem on Ethereum and embracing the fact that they are a dApp as opposed to an app. cDAI and cREP make these tokens distinguishable in third-party wallets, eliminating the confusion of how their balance is changing over time.

Each user has an opportunity cost of whether they should deploy capital in a specific contract or separate application since each contract is it’s own market. While creating a full-stack user experience to appear like an application may garner more users due to lack of friction, it will also create information asymmetry causing the investor to miss out on better investment opportunities, due to the psychological barrier of being closed a closed system.

Ironically, the biggest opportunity in the crypto space is creating an application where the user knows they have write access to a contract (the ability to create their own markets). Developers should be optimizing for cohesiveness with other players in the space rather than creating wasteland of decentralized counterparts to existing applications today.

Disclaimer: I work on helping create a world of infinite possibility at Dapper Labs. All opinions are my own and don’t represent the opinions of Dapper Labs.

NFTY #51: first touch point

What's the best first touch point for users into the realm of crypto?

The NFTY News tracks the ever-evolving narrative of how the mainstream will enter crypto through user applications. In each edition I explore non-fungible tokens, dApps, and the ecosystem affecting consumer crypto applications.

I’ve had a few friends outside of crypto recently ask what the best crypto-user applications are to try out. They weren’t really interested in using bitcoin for payments, but really much more interested in learning about new ways to earn crypto after learning about things like Coinbase Earn.

Most of them are gamers, so I thought I could point them in the direction of CryptoKitties and other blockchain games. After all, 25% of CryptoKitties users during the beta were completely new to crypto. If I could teach my friends about digital scarcity & cryptonetworks through games, maybe I could get them exploring the rabbit hole further.

The other path I could suggest was open finance - being able to earn and instantly put the assets to use and compound earnings.

I ran a poll on Twitter to see what people the general public thought to assert my assumptions:

I decided to start with games first, so I set them up on Dapper (so they wouldn’t have to worry about gas) gave them each $20 USD of ETH to start playing and breeding. And then I told them to start earning and try to double their money.

Turns out, none of them were able to figure out how to double their money playing CryptoKitties, but one of them found OpenSea and figured out how to flip NFTs on the marketplace.

If my original goal was to educate through blockchain games, I failed. But then I tried the second option. I gave them $20 USD of ETH on MetaMask and told them to earn only using a few applications (dydx, Set, Dharma). I consider these three to largely be the best to explain open finance.

The powerful loop that my friends discovered: you can now earn crypto and either a) lend it out and watch it grow overtime or b) turn it into ETH and leverage. Most of them have traded in the past but have never actually used crypto-native applications. Token Sets from Set Protocol blew their mind because they could just pick whatever strategy they believed in without having to worry about price volatility.

They were hooked. They didn’t have any interest in trading on exchanges, but wanted to learn as much as possible about open finance.

Overall, my friends preferred using Dapper over MetaMask because of account login/password, but as a first touch point they preferred open finance over blockchain games, even though they were big gamers.


My reaching conclusion is that open finance is a better first touch-point for new users into crypto in understanding how it works holistically. I think this has to largely do with Kyle Samani’s thesis of Ethereum becoming unbundled. If Ethereum is an unsolved puzzle, then open finance is creating the puzzle pieces to make the unknown picture come to life. The puzzle pieces are starting to fit together using open finance.

Other use cases like blockchain games are still creating their own puzzle pieces, but not making them fit together. The lack of metadata standards and lack of business opportunity on interoperability swung the decentralized pendulum to centralized layer-two scaling solutions, making crypto games look no less similar than what games looked like in 2005.

Blockchain games, however, are a better first touch-point for new developers into the realm of crypto because they can plug into an existing user base.

But that’s for next week.

Disclaimer: I work on helping create a world of infinite possibility at Dapper Labs. All opinions are my own and don’t represent the opinions of Dapper Labs.

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