Hue // A solution to the problem of NFT network effects: increasing inherent value while respecting scarcity
“Metcalfe’s Law” establishes that a network’s inherent value is proportional to the square of the number of end nodes in the network.
This is true for any network: social, telecommunications, and crucially for us, networks gated by NFT ownership.
So for example, if a network has 8 nodes, its inherent value would be 64 (8 × 8 = 64). Add one more node, and the value is 81 (9 x 9 = 81). Increase the number of nodes and you increase the inherent value of the network. Simple, right? But-
The problem for NFT communities/networks is that while increasing the number of NFTs in a collection should theoretically increase the inherent value of the network (more nodes, more value), increasing the number of NFTs decreases the scarcity of each — so the increase in network value can be offset by a decrease in the floor price of the collection.
It’s a significant problem for NFT networks looking to expand into the mass market, particularly given the general non-fungibility and limited liquidity of NFTs. Thus, NFT communities seeking scale often face difficult tradeoffs, either:
- Increase the collection size, sacrificing scarcity, and risking the devaluation of the NFTs OR
- Adhere to the initial collection size, respecting scarcity, and try to grow the value of the NFTs.
But perhaps this is the equivalent of growing bacteria in a petri dish — at some point, the food runs out and the network hits a limit.
Past NFT collections have tried to solve this dilemma by dropping new collections, which sometimes create their own networks, but often end up devaluing the original collection. This is why floor prices often drop after an airdrop.
Even worse, communities and devs can end up divided, with limited overlap.
In this way, the inherent value of the original network is not really increased, but rather new networks are created, each with diminishing returns, and each threatening the scarcity and value of the original collection.
How many airdrops or new networks can a collection pump out before community fatigue sets in? To be honest, sometimes it feels like an endless cash grab, and many times, it is.
Hue offers an innovative solution to this dilemma.
Hue is a new 8 x 8 pixel pfp art collection of 6400 NFTs, minting on the zkSync blockchain. Clean, colorful, & cool. Perfect squares, each representing a 64 pixel canvas.
With traditional NFT dynamics, Hue’s 6400 NFTs would be the total nodes of the Hue network, placing a hard cap on its growth potential and inherent value.
But Hue is doing something radically inventive and cool.
Owners of original Hues are able to successively split their NFTs into progressively more fungible quarters, each representing a new Hue NFT which can be individually resold, each quarter still granting access to the Hue community.
Normally, this would be a problem for inherent value because the increase in collection size would disrespect scarcity, threatening the value of all individual Hues but-
Quartering a Hue NFT literally destroys it as a PFP, thereby respecting (even increasing) scarcity for the initial collection, while creating more fungible units for facilitating access, trading, and liquidity.
Fractional Hues are available on marketplaces to enable many different use cases, but only original matching pieces can be recombined into original Hues. Meaning that unless all of the pieces of an original Hue are united by a common owner, it cannot be resurrected. Sadly, Hues may become more and more scarce as time goes on.
In this way, the total number of 1 bit Hues represents the total potential size of the Hue network (and possible number of nodes for calculating inherent value), allowing the network to scale from 6400 NFT nodes to a grand total of 409,600 nodes (64 x 6400 = 409,600).
And that’s the story of how Hue addresses the paradox of network effects while simultaneously respecting scarcity.
Hue is a deflationary collection built to scale.
Huelcome!
Links.
Mint me now on zkSync!
Web: https://www.huenft.com/
Twitter: https://twitter.com/hue_nfts
Discord: https://discord.gg/huenft
Medium: https://medium.com/@hue_nfts
