Interlude project update: fixing the procotol (and our tokenomics)

The First Scavenger Hunt happened on Sunday. It concluded the first phase of the project, so now is a good time to look back and reflect a bit about what we’ve accomplished in the last two months.

First let’s look at all the positives!

The positives

A lot as happened since the end of July, when one of our tweet went viral and we ended up with hundreds of investors — and players — instead of a handful as expected. SWe were able to raise more than 500 BNB, we listed ISH on PancakeSwap, we grew the community to almost 2,000 investors (at ou peak), published the tools for game dev to join our project, found the first game devs to partner with us, and more importantly ran our first scavenger hunt event. This was a success and gathered more than 500 players (with almost 50 finishers) proving not only that our tech worked but more importantly that the concept was viable on a gameplay viewpoint. Our second event — the Scavenger Hunt of Sunday 3 October — was a new breakthrough because for the first time we integrated games that were not developed internally by us, so it proved this works on a game dev viewpoint.

That’s a lot of good things. Now to the more interesting part, the bad things.

The negatives

We made of course a lot of mistakes. In general we can all classify them into two bigger classes:

• we botched our marketing. Among several mistakes we made, the biggest one was to pay far too much for influencers that were not really convinced in the project, and that brought almost no new members/investors. There is a reason for that: our presale went incredibly well with almost no marketing, no backing from any launchpad, no locking of any sort on our token (100% unlocked in dev wallet) and while running them on our own websites with our own smart contract — 2018-style, at a time when almost every investors will exclusively invest through proven platforms like DxSale and Unicrypt or other launchpads. That made us overconfident. We basically thought, if having 3,000 views by medium Youtubers allowed us to raise 500 BNB, then having 30k views will make us raise 10x more right? Unfortunately that didn’t happen, and we spent a lot of money with very meager results.
• we also neglected our tokenomics, aka “short-term investors confidence management”. There is no tax, no lock of any sort on the ISH token; and we didn’t implement any form of staking. We were very convinced by the long term potential of the project, and we thought investors would be too. And for sure a lot of our investors are, and are clearly here for the long term. But the chart is the chart, human psychology doesn’t change, and it’s very disheartening to see prices going down day after day. It kinda slowly eats at the community, with first the most fickle and short term investors leaving, and then slowly the long term believers losing hope as well. So yeah, it turns out in reality we can’t neglect short term price action. It might be the right thing to do as an investors (cf Warren Buffett), but for a crypto project that has to grow the community to survive it’s not a good idea.

These two big mistakes were enough to break our momentum. We didn’t get these new investors, we started to slowly lose our existing one’s confidence, and with all the expectations built up from the presales and the subsequent pump we fell off a cliff, like Wile E. Coyote.

A more worrying problem

These two mistakes can be corrected in a matter of weeks, and we will correct them. There is a third point however, that is more fundamentally threatening to the project’s long term viability, and we’re pretty sure it was spotted by the more long term minded investors.

1) Protocol flaw

We had hoped that the scavenger hunt event would create a new upward momentum in price, and that with ISH price rising we would get new users, more demand for ISH, and so on. Instead the inverse happened, with most potential players having already purchase their ISH, and a massive — and admittedly predictable — dump happening at the end of the hunt. This made investors, not only weary at the price falling even further, but also angry because players that were not even investors were able to make off with the dough and crash the price while they had to hold! This sent the price in a death spiral below even the presale level.

This points to flawed (crypto) economics, and it is actually the case that the protocol in its current form is not sustainable. We simply cannot give players such a sizeable amount of money, without asking them to pay something in exchange. We brushed this off since the beginning of the project, because we thought we just needed to ask for a fee for playing the hunt, that would then go in the prize pool — like a lottery. But when we first started to think about it seriously after the scavenger hunt and the subsequent dump, we realized this wouldn’t work either: we would need a big fee to make a significant prize pool (like $10 for every hunt), but if the fee is too high only the best players will be interested in playing. This is not a lottery where everyone has the same chance to win, most players won’t be interested in paying a big fee to lose every time. So if we go this way we’ll never get more than a few players.

2) A simple fix

The solution is simple: we have to make the hunt rewards proportional to the ISH holdings of each player. Directly proportional: for the same rank, a player holding 1000 ISH has to earn 10 times more than a player holding 100 ISH.
This small modification to the reward algorithm is sufficient to give balance to the whole protocol. Now the utility earned from the network (by playing and receiving a reward) is proportional to the utility brought to the network (by investing and holding ISH), which should be the case for any well designed economic system.

Now the utility earned from the network (the reward received by playing) is proportional to the utility brought to the network (by investing and holding ISH)

3) A new problem…

The problem is that by doing that, it becomes easy to cheat at the game: if you’re a big investor, just find the best player and give them your ISH (through a smart contract proxy if trust is needed). Then you will earn as if you were the best player. Now everyone will do that, and the game is losing all its purpose.

4) …that we transform into a feature

We pondered a few days over this problem and how to prevent it, until an epiphany came to us: why should we prevent it? On the opposite, why not turn this into a feature of the protocol?

Doing this, allowing investors to find another player — a “champion” — to play with their tokens, would be equivalent to betting on them. So we’re actually creating a new game, this time for investors, where they don’t have to play by themselves but simply have to find the best players to place — or stake — their ISH on, and receive the same reward. And if we implement a commission system, where investors have to give part of their earnings to the players that will play for them, this becomes like a pro competition, where the best players could become professionals, and would then be supported by investors depending on their stats or the type of games they’re good at. This opens a huge amount of possibility!

We can go even further. We can create a whitelist of “champions” — players that will be authorized to play on behalf of others — with a list of requirements. For example, we could require champions to live stream all their games, or to already be influencers with a good community. This way we would direct the games earning to the type of players that brings the most to the project — eg, influencers and streamers that promote the game to their communities.

With these modifications we are tightening the project’s tokenomics tremendously. Now the people that will earn the most at each scavenger hunt will be the long-term investors (which are the one that are most needed), followed by streamers and influencers, and then only followed by anonymous players. This way we avoid this awkward situation, where an anonymous player, that is not an investor and has only discovered the project the same morning, can play the hunt, win and earn more than 99% of all of the project’s participants (investors included), then just dump the tokens and go away. This is not just harmful by simple financial arithmetic but also infuriating to other participants, so it’s a good thing we’re fixing it.

Wrapping it up: the practical, upcoming implementation

We want to make the reward proportional to each player’s ISH holding, and to allow ISH holders to designate a “champion” that will play for them. So here are the practical change to the Interlude product:

• we will build a locking/staking platform. The holding of ISH has to take place over a continuous period to be economically meaningful, which means we need to lock the tokens. So we will build a simple interface that will allows long term investor to stake their tokens. Incidentally we will certainly offer some ISH reward (eg a certain % APY) like a normal staking platform. This will go a long way in solving our tokenomics problem. Duration will be fixed, certainly 3 months.
• the amount of locked ISH for an address will be used as a coefficient by the scavenger hunt smart contract when determining this address’ scavenger hunt reward
• investors that lock their tokens will be able to select a champion at any time, linked to their wallet. At each scavenger hunt event their wallet will receive the same reward, as if they had been playing themselves and won the same rank as the champion, scaled by their ISH holding (and minus a 15% commission)
• the list of champions will be determined by the core team, by selecting either very good players or streamers with a good community. In orer to incentivize normal players’ participation, we will introduce several additional mechanisms, for example lotteries with ISH and/or NFT rewards, in this version of our smart contract.

We have already started development for these features, but we are still very interested in community feedback on all these ideas. We expect the whole new system to be ready at the end of October, for the next scavenger hunt event!

We know we have been very demanding with our investors, especially these last days. We are now asking for even more patience, and wait for a small month to see what this will bring to the project. From a long-term investor’s viewpoint these are many good news at once: bringing staking with ISH rewards, redirecting 85% of each hunt reward to investors (instead of players) and making the whole project more interesting, especially to potential streamers and influencers. And that’s letting aside the compounding effect on investor’s confidence, that might strengthen the price and even finally get it back to the green side. So let’s wait and see how it turns out!

TL;DR:

• we build a staking platform for ISH with APY to be determined
• rewards in the scavenger hunts will now be proportional to locked ISH
• investors with locked ISH will be able to select a player to play for them, and earn 80% of the reward earned by the player (that comes from their tokens). This means most of the prize money for each scavenger hunt will actually go back to investors.
• the list of players that investors can stake on, that we call “champions”, will be selected by the Interlude team. For the next hunt it will be made of our existing partners/streamers. Later on we will take a mix of influencers/streamers, and the best players.
• this should be ready for the next scavenger hunt coming end of October.
• feedback is welcome!

Thanks for reading, as always, don’t forget to follow us on Twitter to stay up-to-date, and to join our Telegram to discuss the project or ask questions.

PS: this article describes the big change we’re making to our product/protocol. We will publish another article within a week, that will lay out our upcoming roadmap in more details — in particular what changes we will bring to our marketing/partnership strategy.