8 Questions I Answer Before Buying an NFT
1. Is this project on the Avalanche blockchain?
I stick with one blockchain: Avalanche. Transactions on their chain are fast and cheap. They have the best gaming projects. It’s a relatively new blockchain, but it can handle way more transactions than Ethereum (6500/second vs. 15/second).
I can’t emphasize how much cheaper it is too. I’m pissed if I pay more than $1 on an Avalanche transaction. Ethereum transactions regularly cost more than $100.
And I like their team. They invest tons of money in new projects in their ecosystem. They’ve even been super helpful with our project.
Choosing only one blockchain to invest in makes life a lot easier in this space.
What is a blockchain?
A blockchain is basically a series of transaction confirmations backed by publicly verifiable transactions. The longer the series of transactions (i.e. the longer the ledger), the more secure and valuable the blockchain.
Blockchain = series of transactions
2. Is this project a play-to-earn game with staking rewards?
Investing in only one type of project on one blockchain cuts out 95% of noise. There are 10s of thousands of projects in the crypto space. You have to have some kind of choosing mechanism.
I stick to play-to-earn crypto games that offer staking rewards. Let’s break down what the hell that means.
What is a play-to-earn game?
P2E (play-to-earn) games are exactly what they sound like: you make money by playing them. Here’s how they work:
- You buy an NFT
- You “stake” that NFT (more on that in a second)
- You earn rewards in the game’s native currency for staking that NFT
You can then trade that currency for US Dollars, or you can reinvest it into the game and make even more of the in-game currency.
What is an NFT?
In this space, an NFT is a game character that exists on a blockchain. Unlike a character in a video game, which is just a series of code that exists on a cartridge or a disc. An NFT character is backed by a series of transactions on a blockchain. That means you can trade it, sell it, or transfer it for real money.
Think about it like this:
Remember Super Mario?
Imagine if Nintendo allowed you to buy a custom, playable Super Mario character with diamond overalls. Other players might have green Marios, or alien Marios, or some other goofy customized Mario. But yours has diamond overalls.
Now imagine every coin you earned in the game could be exchanged for US dollars.
Now imagine you could sell your Super Mario character with diamond overalls for real money.
In really rough terms, that’s a bit like using an NFT in a P2E game.
What Is staking?
Staking basically means depositing. Imagine you put your custom diamond overalls Mario into a digital bank within the game.
Through the staking mechanism, the game rewards you for this deposit by giving you in-game tokens that accumulate the longer you leave it staked.
Not every game offers this type of reward. I only like projects that do because it offers some very lucrative passive income.
3. Is the community active?
The communities for these Avalanche gaming projects live in two places:
Twitter and Discord.
Twitter isn’t nearly as important as Discord. Twitter is where the official project team gives updates, posts memes, creates hype, etc.
The Discord is where shit goes down, because that’s where the community is in control.
What is Discord?
Discord is a messaging app where you create a separate space for each project.
If a Discord is dying, the project is dying.
You also get to see how the team interacts with people. How they respond to questions. If they respond to questions. How they react to hiccups. Etc.
This is the Imperium Empires team responding to a huge mistake they made in a launch. They were active and communicative on their Discord the whole way through. A huge plus.
I wanna see at least 1,000 people in the Discord. Preferably more. But small and active can be way more valuable than big and toxic.
4. Is the team doxxed?
This isn’t necessary, but I like to at least know the team is a group of people who exist in the real world.
What does Doxxed mean?
Being doxxed is another way of saying someone has revealed their true identity (i.e., they’re not an anonymous online entity).
A lot of crypto dev teams like to keep their identities secret. Helps with security. Also helps because most of us are creating projects in our spare time. For example, most of our team doesn’t want their employers to know that they have this side hustle in the Metaverse that will eventually take them out of their current jobs.
Having said that, I understand why teams don’t want their identities known. But they should reveal something about themselves to the community. A bio on Discord or on the website is a start.
Another way to do this is by hosting Twitter Spaces.
Twitter Spaces are audio chat rooms on Twitter. A lot of teams use these to provide updates on their games.
They’re useful because even if a team wants to stay anonymous, I can still get a sense for them because I can hear their voice, how they talk, etc.
If I don’t know the team, I might still invest. But they’d have to make up a LOT of ground by being active on their Discord.
5. Do they have a whitepaper?
Plenty of high quality projects launch without a roadmap or whitepaper. That’s great for them. I’m not interested.
What is a whitepaper?
A whitepaper is a document that lays out the details of the project: the game mechanics, future plans, and tokenomics (more on that in a second).
The roadmap (part of the whitepaper) is the scheduled plan for the game.
Some projects have whitepapers with tons of spelling and grammatical errors. Some have obviously been translated to English from another language.
No problem. This is a worldwide community. Not every sloppy whitepaper is from a scam project. But —
Every scam project I’ve seen has had a sloppy (or nonexistent) whitepaper.
Read one sentence of this whitepaper for Idle BURGR and tell me you’re shocked it turned out to be a scam:
Beyond syntax errors, when I read a whitepaper I’m looking for well-thought out tokenomics.
What does tokenomics mean?
It means I want to know how this project uses their native token to reward players.
I like projects with 2 tokens. The structure often looks like this:
- I buy an NFT.
- I stake (i.e. deposit) that NFT in the game.
- I get Game Token #1 as a reward for staking the NFT.
- I stake Game Token #1.
- I get Game Token #2 as a reward for staking Token #1.
Often times you can use any and all tokens to purchase upgrades in the game.
Here’s an example of this structure from a project called Chikn:
I like this structure because if you get in early on a really successful game, you can imagine how quickly you compound your returns.
6. Do they have any locked liquidity?
This one is a bit more complicated. I still don’t understand it 100%. Maybe 75%. But here’s what I got —
Locked liquidity is a hedge against scams. It’s basically the dev team saying, “Hey, we won’t sell all our coins and run on you guys — this project is sticking around.”
Scam projects (or Rug Pulls, as they’re known — because you get the rug pulled out from under you when you participate) usually work like this:
- The Dev team hypes their game.
- They release their native coin prior to game launch.
- They keep a ton of coin for themselves.
- Coin price bumps up.
- They sell all coin.
- Never launch game.
- They make a bunch of money.
- Everyone else loses all their money.
What a lot of teams do to prove their project isn’t a rug pull is lock their liquidity. Meaning they do this instead:
- They have an NFT sale (called a Mint).
- They use the proceeds form the Mint to put US Dollars (i.e. liquidity) behind their forthcoming coin.
- They launch the coin, which is backed by some percentage of US Dollars from the NFT sale.
- They lock the coin in something called a time-locked smart contract (basically means nobody can access the coin until a certain period of time is complete, usually 3 months).
- The project offers rewards in a coin that is backed by locked up liquidity, meaning it’s always backed by something other than people’s faith in the coin — in this example, the US Dollar.
The team can then prove they locked this liquidity by sharing the smart contract address with their community for verification purposes.
This project, Miner Joe, is really good about sharing their liquidity moves with their community.
7. Do I like the Art?
This one is completely subjective: do I like the art or not?
Rug Pulls almost always have shit art.
Sometimes legit projects have shit art.
This isn’t perfect or rational. Just your own preferences.
If everything else on this list lines up with my requirements, I don’t give a fuck what the art looks like.
For example, this RYU dragon character looks stupid. But I like the tokenomics and staking rewards of the game, so I’m still invested.
8. Can I participate in the mint?
This is huge. This is one of the most important factors in all this.
Participating in the Mint (or the initial NFT sale) is the #1 way I’ve made money in this space.
Being one of the first to buy an NFT character in a successful project is like printing money. You can resell on the secondary market for a profit, or you can stake for rewards.
Some projects will have a Mint, then offer staking rewards farther down the line. Not interested.
I want to buy an NFT (or 10) at Mint, then stake within a matter of days or weeks.
But to do this, you have to have a quick trigger finger.
I’ve had to bring my laptop to yoga more than once so I could hop out of class and buy an NFT at Mint.
I’ve woken up at 6am to participate in a Mint before.
It’s a whole thing.
But this is how I’ve made scratch in the P2E crypto gaming space.
If I answer yes to all 8 of the previous questions, AND it passes the sniff test, I’ll invest.
This is not financial advice.
If you like this, follow me on Medium and on Twitter: TheGregLarson
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