Exclusive: Discovering the Future of NFTs: An Inside Look at On-Chain Trait Swapping
Everyone is debating about which chain is the future of crypto while ‘enforced’ royalties are becoming unsustainable. Several companies are developing new metas to bridge web2 to web3 and create new revenue models. So let’s take a look at how on-chain trait swapping will become a fundamental part of the future of NFTs and solve several pressing issues.
In recent history, many free-to-play games leveraged micro-transaction sales through skins, cosmetics, emotes, etc. Fortnite and CSGO generate $100’s millions of dollars annually through the sale of skins.
Customizing your avatar is standard across every major game. Now, through the use of on-chain trait swapping you can customize your NFTs to your liking. You are no longer forced to submit to the will of the RNG gods and you can just build your ideal NFT.
What happens in NFTs today?
If you haven’t noticed, most people adorn their profile pictures with an NFT they either identify with, role-play as, or rep their favorite brand. You express yourself through your PFP.
People even create derivative artwork of their PFPs to further express themselves. However, those derivative pieces aren’t associated with the main collection, You can build your own brand. Place your NFT in a variety of different environments, settings, and even motivational messages. The only limit is your own imagination.
Since the community is the number one driving factor in web3, many recent projects have fostered the explosion of trait-based Sub-DAOs, Clubs, and Treasuries. These clubs are designed to enable community members to build on top of and extend the IP of the collection.
What happens in gaming today?
If you grew up gaming or spent any time around a pre-teen to teenagers you’ll see that games like CSGO, Fortnite, and Roblox have taken over. Free-to-play games have taken over and generate most of their revenue from skin/cosmetic sales and DLC (downloadable content).
I have a 9-year-old nephew that logs onto Roblox not to play the game but to spend literal hours customizing his avatar in the game. He doesn’t care about min/maxing, achievements, or K/D ratios. All he cares about is how good can he look in that game and what emotes he can use to role-play.
The question I asked myself was, is he the only one that feels that way?
Put simply: No, most definitely not.
It took some digging but I found an interesting statistic from Epic Games (makers of Fortnite), nearly 70% of all players have made at least one purchase. This trend does not seem to be slowing down.
Why is on-chain trait swapping the future?
I believe the answer to that question is multi-pronged. First, trait swapping is another stab at solving the long-tail holding issue around NFTs. For many the goal is simple; mint, flip, and consolidate into blue-chip projects. How do you break the cycle of a flip?
A randomly generated mint is not always going to form that instant connection. If you aren’t fast or savvy enough all the rare/desired traits start to skyrocket in price alienating many from ever getting their hands on a “grail” NFT from the collection.
How do you break the cycle of a flip? Give them a reason to hold.
Give them something they can enhance.
Give them something they can express themselves through.
Give them something they can be entertained by.
Something they can become attached to.
With trait swapping, you can express yourself in ways that weren’t possible before.
- Build your grail NFT for a fraction of the cost of buying on secondary.
- Dress up for moments in time like the World Cup or Super Bowl.
- Publically display your support for collaborations.
- Build with brand IP.
Secondly, trait swapping is a fantastic revenue generator for a collection. Through the use of micro-transactions;
- buying traits
- removing traits
- adding traits
- Freezing looks
These per-action fees are nominal, but with volume, you could shift your dependency on royalties to a more reliable revenue source. Plus you have built a fun and creative experience that your community can enjoy again and again.
Last, trait swapping decentralizes brand IP to the holders.
- It enables them to build more on top of that IP.
- It fosters creativity
- Expands your reach
Prior to web3, brands had to exclusively rely on employees and contractors to build their identity. By providing creative assets & tools to holders you’re allowing the many to build for the many rather than the few building for the many.
Web3 at its essence is about ownership and decentralization, I’ve never understood why projects didn’t want their community to produce products, services, and entertainment using the brand IP.
Who is building on-chain trait swapping?
Doodles, just announced that they are building a whole trait-swapping suite on the Flow Blockchain. Using assets such as the Dooplicator (where the trait swapping magic happens) and their Genesis Box (random trait drop) to enable all Doodle holders to use their Doodle 1’s to make Doodle 2’s with mutable metadata.
Doodles have decided to build their new experience on Flow because they like many realize that in order to onboard the next wave of users the experience needs to be frictionless and paying $30 in gas fees to take a t-shirt off of an avatar ain’t it.
It needs to feel like a game or any other equivalent where you take items off and on and you don’t even realize you are interacting with the blockchain. The Doodles team does an excellent job of breaking down what, why, and where they are building in the thread below.
Valhalla has taken a slightly different approach. By collecting Armory Tokens holders can burn them during “ReRoll Events” to get a “Reroll Pack”. Holders can then choose to apply the traits in that pack or save them for later. Once applied you’ll sign a transaction and the metadata of the NFT will be updated to reflect the new traits. With 14K Armory Tokens burned during their first “ReRoll Event,” I think it’s safe to say the people like it. Take a look at what the team rolled out for their first event below.
Degenerate Trash Pandas (DTP) through the use of their @OnlyRaindrops smart contracts, the project converted every trait within the collection to SFTs (semi-fungible tokens), developed a trait marketplace, and an editor where you can apply and remove traits with live previews. Once you submit your changes the metadata is updated on-chain and you have your new panda.
Since the traits are SFTs they are tradeable just like any other SPL token. Which opens up the door to the new trait economy. Much like the web2 games of today, except now you can go to a marketplace and offload all those skins you’ve been buying for the last 5 years.
The massive step forward that DTP is taking is enabling independent artists to launch traits for the collection that holders can buy/sell/equip/hold. A brand new revenue stream for artists.
The traits can be packaged in booster packs with varying rarity and randomization. The packs themselves are tradeable, then the contents inside of the pack can be resold or burned towards a new pack. The whole experience is very similar to buying packs of trading cards and ripping them open to see what you got.
What does this mean for rarity?
Arguably this is the largest elephant in the room. With metadata being updated, naturally, this changes the rarity of a collection. Rather than it being static from the time the collection is fully minted, it’s now dynamic. Much like the traits are shifting, the meta around rarity is shifting.
For those of you who made significant bets on rare+ NFTs, I can understand your apprehension towards this new idea because your bags are actually on the line. That being said, I imagine that much like classic cars, there will be a market for those who only want untouched NFTs and those that won’t care if there are after-market parts on it.
Don’t forget for the most part NFTs on ETH are immutable so you should be fine. This is a cautionary tale to not make significant bets on things with shifting metas and being agile and liquid is still King.
Aside from old bags potentially taking a hit, trait swapping allows for the gamification of rarity. Rarity can become a leaderboard/game. Who can build the most uncommon NFT within the collection, and how long can you stay at the top until someone knocks you down?
More game theory options for everyone are a net positive at the end of the day.
The trait economy
Web 2 partnerships. If you’ve spent any amount of time in Web3 you’ve surely seen a web2 company attempt to launch a web3 product to a web3 audience, and for the most part, they fail miserably. In my humble opinion, the reason many fail is that they don’t do the most important thing in web3, which is to build a community. The assumption is that they have a web2 audience so that should translate to web3 and it doesn’t.
Nickelodeon, Porsche, Mcdonald’s, and Toys R Us have all delivered some fat losses in the space. Enter trait swapping. With it, web2 companies can form partnerships with Web3 brands and release limited traits for their collections. Now everyone in Doodles can buy that Gucci shirt that was just released. It’s marketing for the web2 brand, win, and holders are getting excited about their favorite web3 brand, win.
You could take that a step further, let’s say Gucci sells a limited physical shirt that only holders of “x” community can buy. You get the physical shirt in the mail and woven into the cuff is an NFC tag. You scan that NFC tag and receive a trait in your wallet that you can add to your NFT. So not only does your digital representation of yourself have the Gucci shirt but you also have the physical item as well.
This tech is live and variations of it are being built today. If you can’t see how this can become the future of NFTs then you are clearly hiding under a rock and I’m not talking about the left-facing one that sold for 1M Dollars.
Trait swapping isn’t just happening on-chain. It’s also happening through derivative artwork and off-chain traits. For example, the @URClub is a group of Solana degenerates that created the first “club” for y00ts during the scholarship phase of their project.
Users who were stuck with the “Under Review” tag for an exhausting 30+ days found solidarity within the bounds of the URClub (Under Review Club). Fast-forward to the present day the UR Club has been auctioning off NFTs of diamond & gold chains. The winner of the auction gets the chain placed on the PFP of their choice, off-chain (no pun intended).
The significance of this is substantial, not only has UR Club demonstrated product-market fit with 10+ auctions all being successful, they have shown that there is a demand for customization, and people want to feel connected to something.
To sum things up
I am very bullish on the future of trait swapping and the role it will play in the market. Frictionless experiences, that emulate what we already know will be the catalyst for the next bull run in crypto and web 3.
Trait swapping solves issues that are currently plaguing the industry such as marketplaces scrubbing royalty enforcement, to finding revenue sources for your project. It opens exposes you to all levels of B2B partnerships and creates a space for independent artists to leave their mark.
Microtransactions are something we are already comfortable with, experience daily, and understand and just maybe it has the ability to shift the current flip-driven NFT market and give holders something to hold onto.
Only time will tell.
Next steps
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