Skill/effort-based, value-creating NFT valuation case
Utility AND Rarity
The value of anything is set by its utility/functionality (or underlying asset-value, if it is a proxy) and the market forces (supply and demand). Rarity drives value, no doubt. But rarity alone is not enough. My half-eaten apple is unique and rare. There is no other apple just like, nor will there ever be. However, because it has almost no utility, it also has no value.
Uniqueness — “One-Offs”
When we consider NFTs we realize that the name we gave them is less than ideal. NFTs are similar to art in being a “one-off”. As such they are not defined by the fact that they are not fungible. They are defined by the fact that they are unique, like art. In art, I mean a painting, but also an artisan table crafted by a master carpenter, or a Stradivarius violin.
Performance (quality) AND Rarity
Let’s look at the violin example. Say we have three violin makers. All from the 17th century. All creating unique violins, simply because they make them by hand. The first is proficient but almost indistinguishable from most violin makers. What he makes will be worth today hundreds/thousands of dollars (if it managed to survive). The second is a master. His violin today will be worth tens or even hundreds of thousands of dollars. The third is Antonio Stradivari (the most renowned of the Stradivarius family). His Messiah Stradivarius is valued at ~$20,000,000 today. Why? It’s hard to say. The materials it was constructed from were of the highest quality and they affect the instrument’s sound and ability to weather the centuries. However, they are not the key reason.
The Stradivari violins are so expensive because they perform superbly, producing unique sound AND because they are so rare. They are rare because they were made by a master (=experienced) genius supported by generations of craftsmanship and accrued know-how. Antonio Stradivarius knew how to select the materials and how to craft them. The Messiah Stradivarius is valued so high because of its quality, which means it performs above all, or most others, AND because it is rare.
The value of One-Offs is set by Performance/Quality AND rarity. The two are connected, clearly. One could even say that we are looking for things that are rare because of their unique quality and performance.
Valuing NFT
The problem with valuing NFTs today is that we have no infrastructure or mechanism to evaluate the quality or performance, and therefore we cannot tell which rarity is valuable and which is a half-eaten apple. That type of “climate” precipitates a Tulip scenario…
What’s so bad about Tulips?
Anyone who “dipped her toe” in the NFT “waters” worries about it being a “Tulip”. Well, what’s so bad about Tulips? They are beautiful. They smell nice. Some are more common, and some are rare. They are not cheap, but their market price, like other fairly pricy commodities, e.g., Saffron, balances supply and demand with measurable, almost scientific tangible attributes. I am being coy. When we say “Tulip” we mean a bubble. Like the one that happened in the Netherlands around 1630. But here we are today, with a fairly stable market of Tulips. So, what happened? Well, one of the things that happened is that in 1630 Tulips were still very new. Tulips arrived in Europe in the late 16th century. The diffusion of innovation was very slow then. Such a young market suffers from limited supply and is easily manipulated by a few influential “movers and shakers”. It has little to no benchmarks or measurement tools, no reliable attributes, and no clear future. That is the “Tulip climate” everyone is so afraid of. The NFT “climate” has a lot of these hallmarks. It is still young, and it is nested in the crypto market that is by itself also still young.
Unlike the FT crypto market, where PoX mechanisms together with different strategies to balance supply and demand action to foster value stability/curb volatility and hyperinflation (sometimes with limited success because of the other characteristics I listed), the NFT market lacks that type of Defi infrastructure, especially a mechanism that defines the underlying value (performance/quality). Two tulips may look similar. However, an expert botanist may see that one is a very rare specimen, while the other is common. Getting the seeds for that rare specimen requires training, time, and effort. Growing it requires a unique environment. There are endless variables that affect the end result. Very few people have the expertise, talent, or skill to grow such a rare flower. The direct cost of these efforts may seem expensive, but this unique combination of conditions and training and investment of effort makes this so unique that the real driver of its value is scarcity. [Think of the Blue stuff made by Heisenberg in Breaking Bad]
Today NFTs are Tulips.
Without a measure of quality/performance, the value of NFTs is set today only by supply and demand — one defined by the issuer and the other easily manipulated by her. That means that the market value can be manipulated much the same way Tom Sawyer manipulated his friends to paint the fence in that famous book by Mark Twain.
What if Rarity WAS a measure of quality/performance?
Quality in art is set by experts. People who dedicated their lives to this profession. And yet, the art market is a very fragile bubble (there have been cases in which experts were fooled by pieces created by toddlers or monkeys, appraising them as high art).
What’s the point of this long preamble? I mean, it’s Snook. An IO game…why are you talking about Tulips and tunas and Stradivari?
Well, because Snook is an example of how it is possible, for the first time ever, to have a direct measurement of a very specific type of genius. Snooks has found a way to measure quality and performance and to tie it directly to rarity. It means we can value NFTs objectively. You don’t believe me? Let me guide you through it:
Anyone can play Snook — playing requires almost zero training and no skill.
Few have natural talents that make it easier for them to get better and outperform others.
Of those few, even fewer have the time, desire, patience, and persistence required to realize their unique potential and develop the top skills needed to be the best.
That tiny sliver of the Snook playing population will be the best.
As such whatever they win will be rare.
Its rarity is a direct result of thousands if not tens of thousands of gaming hours and natural talent (eye-hand coordination, reflexes, nerve density in the tips of the fingers).
The value of their NFT, which now has a unique and super difficult to obtain set of traits, or special skin, IS its rarity because it stems directly from her skill which stems directly from her natural talent and efforts invested in cultivating it and realizing its potential.
It matters!
Snook is a pioneer in the NFT market. It demonstrates that it is possible to connect the value of a One-off cryptographic digital asset to the invested work and unique circumstances of its creation. This is dramatic. It paves a path that can lead us away from the imminent Tulip scenarios. In the end, digital assets are forms of human expression. Human expression always combines talent with investment/effort (see Outliers by M. Gladwell). Exploring ways of measuring the relationship between rarity, talent and investment is what we do.
It’s just a game if mining gold in 1849 was just a workout
Yeah, it’s a multi-player, snake-like, weirdly addictive, IO game.
But you wouldn’t be here if it were just that.
Snook is the first NFT project/economy that connects rarity, value, and skill.
The value of the snook-NFT — your game character that changes as you “eat” stuff and if you’re truly a snook-God can become super rare — is derived from its rarity which depends on the user’s skill. Snook employs a unique Skill-based Value Metric (SVM) for setting NFT value based on measurable, objective attributes. Since NFT value is proportional to rarity and rarity in Snook is skill, the player’s performance sets the NFT value.
That’s huge! Why?
Because rarity alone is not enough to make something valuable.
An example of a useless rare character
A recording of me singing in the shower is super rare. It is also worthless. However, if it’s a recording of the Queen Mother…well…that’s a different story. The value of rarity comes from the Queen’s attributes. It has nothing to do with the sound. It’s external to the NFT.
Alternatively, someone may decide to promote me specifically, create a buzz and hype and increase the value of my shower singing. This too is possible, and it happens, however, the value of the NFT is again not a product of internal value or even a reflection of market forces.
With no sustainable intrinsic source of value-generating activity, NFT value is prone to manipulation and out-of-control spike-and-dump behavior. It’s unsustainable.
Snook is the first to break this paradigm and create NFTs that measure and record value that is proportional to their rarity which is a result of the user’s skills, talents, efforts, and past investments of time and patience. Now we have an NFT economy in which value comes from with-in — the skill and toil needed to become good at the game. It’s like adding an engine to a “show” bulldozer. It can now clear a path that both leads us away from a bubble scenario, and towards a sustainable NFT economy. Exploring the relationship between rarity, talent and toil is what we do.
We think it’s pretty nifty.
To sum up, Snook is the first to fuse the rarity-based NFT value with the unique circumstances of the creation of a one-off cryptographic digital asset and the skills, talents, and efforts invested in its development.
It’s a mouthful we know. It means that if you are good — your ability and achievements will be captured in the NFT and it’ll be worth more.
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Till next time,
S.L.
