The Koolworld Experiment — Art and community-driven deflationary NFT collections
The problem
The NFT space has long struggled to properly communicate the true value that NFTs provide to collectors. We are now seeing a lot of creators blindly steering their art and community NFT projects into value propositions intended for DeFi projects. More and more projects are promising their collectors vaguely defined DAOs and buzzword features like “staking” and “loaning” in an attempt to build value into their projects. Collectors are even parroting these ideas as solutions in order to counter the “Right-Click, Save As” argument.
These stock DeFi solutions will only cause teams to compromise on the original vision of their project, as they attempt to shoehorn these promised “features” into their projects. Suddenly, projects that should be focusing on art and community building are now wasting time with staking rewards and token liquidity.
On top of that, it conditions collectors to evaluate these projects by DeFi metrics which is extremely damaging to art and community-driven projects.
It’s time for a new Schelling point
In game theory, the Schelling point is the most obvious decision one makes in the absence of new information. Most teams see DeFi solutions as the Schelling point to build value into their projects. However, these solutions incentivize collectors to value the projects in DeFi terms and lead teams to completely overlook the value they can actually provide their collectors.
In a market dip or bear market, the Schelling point for many NFT holders (especially those new to the space) is to SELL at the floor. People see selling as the best option to preserve capital when floors start to dip because they expect others to do the same. They see their options as selling now at the current floor, or risk watching their investment go to zero. NFT flippers also try to sell with the intent to buy back in later after the floor has dropped significantly.
The result of this behaviour is soft floor prices, which leads people to perceive the project as less valuable, which in turn leads to lower floor prices. This is a vicious cycle.
The Kool Burn Mekanism (KBM) — A New Schelling Point
The real value of art driven NFT projects is the highest quality work in their collections, their future output and their community. All value propositions should be laser-focused on fortifying these aspects of the project.
A far more fitting solution for these kinds of projects would be to allow collectors to burn unwanted NFTs in exchange for Free Mint or Whitelist spots on future project releases and/or other community benefits. We call this the Kool Burn Mekanism.
The Kool Burn Mekanism allows collectors to burn NFTs that the market has deemed low-value or unwanted, which gives these NFTs new utility and changes the perceived value of the individual NFTs and the collection as a whole.
The Benefits
1 Sweeping
There is even more reason for people to sweep the floor of every collection eligible for the burn. People will now factor in the potential value of the future White List spots these low-value NFTs could grant them. Even low-rarity NFTs will be seen as more valuable as they could be used to potentially mint a much higher-value NFT in the next release. This will increase buy pressure and fortify floor prices preceding the new release.
2 Deflationary
Since NFTs from the collection will be getting burned, the collection supply will start to decrease, which will in turn increase the rarity of all the remaining NFTs in the collection. This will further support floor prices and the value of the collection as a whole. In addition, people will have a much harder time justifying selling deflationary assets.
3 Diamond Hands
Collectors will have even more reason to Diamond hand their favourite NFTs. Every time someone flips an NFT they like with the intent to buy it back at a lower price later, they risk losing it forever as someone else could choose to burn it.
4 Community Curation
Since the NFT holders themselves will decide which NFTs will be burned and which will be spared, the natural result over time will be the rarest and most meaningful NFTs will remain, while the less appealing ones will be burned for a shot at a higher value one in a future set. Teams will also be able to gain invaluable insights into their projects by analysing which NFTs the community actually chose to burn.
The Kool Burn Mekanism creates a new Schelling point for both teams and collectors in a mutually beneficial way. Teams will focus on their core value propositions in art and community and collectors’ psychological tendencies will be shifted to benefit the team and project. When prices dip, collectors will buy in anticipation for the next release and they will dread selling as their favourite NFTs could be burned by others. It’s a Win-Win.
Collectors and Project creators both benefit in such an environment.
Koolworld — An Experiment
Koolworld will be the first NFT project (that I am aware of) to allow NFTs from its previous collections to be burned for a Whitelist spot on its future releases. While the concept is sound, the ideal mint and burn sizes are yet to be established. As a result, we will tweak the values as we go to maximise their benefits.
New collections will be small mint sizes ranging from 1000–3000 NFTs per collection on a monthly or quarterly basis. The burn white list of each new release will be made up of 10–25% of the new collections mint supply. During the whitelisting period, buy pressure will be put on the previously released collections as collectors sweep the current floor to buy up the cheapest NFTs to burn for the white list. This increased activity will bring more attention to the project preceding the mint date.
Beyond Kool
There are also a number of interesting concepts to explore as extensions of this dynamic. One such extension would be to tokenize it.
For example, a KOOL token (either fungible or non-fungible) could be created with an initial supply of zero. A smart contract could then be set up to accept NFTs from specific collections. Those NFTs could be burned and in exchange, a KOOL token would then be minted out. The token supply would be limited to the number of NFTs the team has released which the community has deemed burnable and The KOOL token then could be traded freely and, in the future, be accepted by the team issuing the token in whatever way they deemed best serves the community. The supply would then reduce as the team accepted the tokens from the community as they continued to provide art and community output.
The actual market dynamics of this are currently speculative at best, but very interesting indeed.
We look forward to exploring these possibilities in the near future and hope to see more art and community-driven NFT projects experimenting with alternative release and project formats and stop accepting the way things are.
Stay Kool and party on.
