NFT Nights: The First Booking
🎉 So, we sold the first booking via NFT.
😱 I have to admit it was a close call and a couple of days before the end I started to think we wouldn’t make it.
🦍 The power of the crypto coordination, a force to reckon with in the next decades, saved the day.
(am I using too many emojis? I just realized they can add some depth, kindly indulge me for a while)
As stated this is just an experiment and the main reason (other than being the first in the world to do it and brag about it for centuries to come) is to learn.
Let’s start the analysis.
A quick recap of what happened:
- We created an NFT representing a weekly stay in a Villa in Ibiza.
- We launched an auction for the NFT.
- 😭 No one made offers.
- We created a DAO (a group of people with crypto superpowers) to buy the NFT after the stay for its historical value from the guest, and collected over $2000.
- A returning customer called the manager Carlo, to book the villa.
- Carlo told him about the NFT and the post-stay sale value.
He had no idea what Carlo was talking about but trusted him, accepted the deal, paid in Euro and Carlo made an offer for the NFT.
- 🏆 The guest won the auction and got the NFT.
Here’s where we stand today:
- ⛱️ …a long summer follows… then eventually check-in on August 28th arrives.
- 💰 On August 29th, the DAO will make the $2000 offer as promised.
- NFT collectors will be able to make offers too.
- The guest will accept the best offer (or not, he may decide to keep the NFT, who knows?)
- 😎 The winner will own the first NFT booking in history.
As you can see this is a pretty complicated setup and this is certainly not how NFTs will be sold in the future.
Also, it’s not scalable, but as an experiment it is very interesting, and we learned a lot.
Here’s what we learned
1) Volatility is bad
We used a platform where auctions can only be done in ETH, the Ethereum coin, which is volatile: during the experiment the price of ETH has been moving between about $2100 and $2600, which is over 20%.
This creates a lot of problems.
Carlo needs to cash exactly €5200, not 2,6 ETH which may be worth €3,000 or €1,0000 in September.
A first lesson for us: do not expose managers to volatility.
They are not in the speculation business, they’ve got owners and bills to pay.
So we decided to assume the volatility risk, and while there are ways to reduce it in the long run, it’s not sustainable and adds a lot of unnecessary complexity.
So, crypto doomed? Again?
Nope, crypto builds solutions, again.
The solution is “stablecoins”.
Stablecoins are cryptocurrencies always worth $1.
There’s many of them, and they have been around for years, securing $83B to date.
The most palatable to the non-crypto crowd in the short term rental space will probably be USDC, following the recent news that Visa will start settling Transactions with crypto Partners in USDC on Ethereum.
So, if we want to keep testing with Auctions, we’ll use some platform which accepts stablecoins.
Update 2nd of May 2021: we sold the 2,6 ETH for DAI with a 20% profit on Balancer.
It will be used for future volatility protection.
The DAI will be staked for interest until the 29th of August.
We are now deciding where to stake.
2) Matching supply and demand is almost impossible today
We hoped that some crypto lover would jump at the chance to secure the first NFT booking in history, but the TAM (total addressable market) was ridiculously small.
In retrospect, it was obvious.
ALL these conditions had to be met at the same time:
- Is crypto savvy.
- Has lots of cryptos (the villa is not cheap).
- Wants to travel to Ibiza.
- Wants that specific villa.
- Can travel on those specific dates.
- Has a lot of friends or family (it’s a big villa) who want/can to do the same.
- Has heard of the experiment.
- Wants to take the risk with COVID-19 disrupting the plans.
So, well, we needed a miracle.
This highlights two problems we have:
- Limited reach: we don’t have a budget to reach enough people.
- Limited crypto adoption: this was like Airbnb trying to get bookings in a world where 2% of people had internet access. Not going to happen.
Our thesis is that as crypto adoption grows, the reach needed to have a match lowers.
In other words, if 80% of the people we reached had crypto, maybe someone would have booked.
Also, when 80% of people have crypto, we’ll presumably have a bigger reach.
We are probably at around 5–8% in crypto adoption in Europe now.
Come on old continent, you’re sinking in irrelevance, wake up.
3) There IS demand for the NFT
26 people put real money on the table to buy the used NFT(think of it as a used, precious, stamp).
This came as a surprise as it was a last minute idea, and it all happened in 48 hours.
It is pure speculation of course: we don’t have any guarantee that the market will give value to the post-stay NFT.
Or maybe it will acquire some value and if it does, there is no clear upper limit.
It’s one of those asymmetric bets people in crypto love to take.
Obviously, the historical value of the NFTs won’t be replicable in the long run.
We can’t hope this trick will work forever.
This was the first in history, in Spain and in Ibiza.
The next one will just be the first in, say, Italy.
The next one after this, the first in Rome.
Then the first hotel in Rome.
Then the first for the Majestic Pope View hotel in Rome.
And so on.
As time goes by, the historical value of following NFTs will diminish and unless there’s a good reason to use NFTs instead of other systems, no DAO will buy them.
In other words: nice but not sustainable.
We understand this and one of the working theories we are trying to verify is:
NFT booking > Normal booking?
Do NFT make normal bookings ephemeral?
A normal booking leaves some traces, but they are usually weak, siloed and tend to dissipate from the public view after a while.
- I booked this place.
- I was there on these dates.
- I spent this amount of money.
Who remembers this?
The OTAs do, the owner in the direct booking does, the guest, to a certain extent, does.
Who does not remember this?
Who’s the most powerful beast here? The internet of course.
By this I mean that the global network has no access to this data.
In NFT Nights: Book a Villa with NFT, in THE LONG TERM VALUE OF THE NFT section I outlined some possible side effects of open data and transferability of the asset.
The experiments will tell us if these assumptions are real or if there are other untapped sources of value we did not think of.
4) Intercepting Direct Bookings is worth exploring
If you could increase the value from a direct booking, would you do it?
This is exactly what happened in this first booking:
- The guest paid less
- The manager got a lot of visibility
- The guest gets something of value to keep after the booking
As a result, the following experiments will try to add value to the existing relationship between manager and guests.
5) We should hide the complicated stuff.
At the beginning of the experiment we decided to shield the manager from the crypto tech and assumed a crypto savvy guest would appear.
We ended up closing the sale by completely removing crypto tech for the guest and minimizing it for the manager.
In other words:
- Guests have only to know that they are getting a better deal: that they get a lower price, and they can resell the booking.
The word NFT can be mentioned as they probably heard it on TV, but it should not go further than that.
They don’t need to own or understand crypto, nor have a wallet.
- Managers need only to be able to accept a stable coin as a payment and then exchange it for their local currency. This is easier than it looks, and we’ll personally help to set up a wallet.
In fact all you need to do is to set up a Binance, Coinbase or Kraken account where you receive the stable coin, change it in fiat and send to your bank account.
Honestly, if this is hard, they should probably not be running a business online.
There’s not even need for a wallet in this case, you may learn a bit about web3, but you lose the unfair advantage.
We can take care of the rest.
Great, we’re ready for the next experiment, stay tuned!