Letter 12 - Punks Comics

Burn? Stake? Metapass? What? Let's take a closer look

This is probably one of the most successful and least properly understood projects out at the moment. Heck, I was one of the first few to mint a comic, am holding 8 comics, and I still have basically no freaking idea what’s going on. This Letter is as much for me as it is for anyone reading.

I have been keeping tabs and following the project and the team behind it, and even though I haven’t done a deep dive, I have really liked everything I’ve seen from them. That’s a big reason of why I still hold my comics and haven’t sold despite the massive price increase over the last couple of weeks. So now let’s dig into things and see what this Punks Comic business is all really about.

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What are Punks Comics?

This seems like a good place to start. There is a lot of good information on the FAQ page of the Punks Comic website, but I will try to explain things in my own words. Punks Comics are, essentially, an NFT comic book series. Issue #1 was released on May 10, 2021 (available to mint at 0.20 ETH), and it is the only issue to be released so far. We’re going to focus on Issue #1 in this Letter. When it was released both eth and gas prices were very high (gwei was 400-500 or something absurd, iirc). Sales started relatively slow out of the gate and it took something like six weeks before they sold out all 10,000 issues.

It’s important to note that the whole comic is not living on the block chain. The cost to have that much data on-chain would be insane. Instead, when you minted an issue, you got an ERC-721 token (aka an NFT) that looks like this:

You then received a link to a website where you could download a PDF of the comic. You may also be entitled to a physical copy of the comic. The value is not in the PDF, anyone can and has been sharing that around for anyone to read. The value is in the token itself, and what it grants you as the owner. This is where things start to get interesting.

With Issue #1 of the Punks Comic you have the option to either burn or stake your token, in return for various rewards. Burning is exactly what it sounds like, you do the NFT equivalent of throwing the comic on a fire (for the tech heads you do this by sending it to the “dead” eth address: 0x0000000000000000000000000000000000000000, where is it lost forever). Staking is sort of like putting it in a bank account (where you retain full custody of it) in return for interest in the form of rewards over a two year period. It’s worth noting that you can unstake any time you want. If you opt to stake your comic you will also receive a “physical copy with a special case which will include a serialed certificate of authenticity”.

So why on earth would anyone burn their comic?

For every comic burned, you receive 1 Pixel Vault Founder’s Token ($FLVT). Pixel Vault is the company behind Punks Comic (and other ventures). What’s a Founder’s Token? Basically, there’s a vault with a bunch of high value NFTs and everyone with a token has a proportional share in the items in that vault. To use some rough numbers (we will look at specifics later), if 50% of people who own Issue 1 decide to burn their comic, then there will be 5,000 tokens. Each token will be worth 1/5000th share of what is in the vault. At the time of launch I believe the value of the vault was around 600 ETH, and the Pixel Vault team has been adding to it since then. I believe the value is currently around 1000 ETH. Therefore the value of burning is at minimum (assuming 5k people burn): 1000/5000 = 0.2 ETH.

This is the intrinsic financial value of the token. There are also extrinsic benefits to having a $FLVT:

The Founder's Vault DAO is intended to be a collection of long-term holders looking to build a community around these characters. As such, Pixel Vault Founder's Token holders will have access to a private Discord to discuss the future of the PUNKS project, the Founder's Vault DAO, and more.

The long-term fate of the Founder’s Vault DAO will be determined by a vote of the holders of the Token - these holders will have full governance over the Vault and its contents (buyouts, fractionalization, sale of individual items, internal fundraising for acquisitions, etc).

Wait, what the hell is a DAO? Okay now we’re really getting down a rabbit hole. A DAO is a Decentralized Autonomous Organisation. Think of it like a company where all ownership and voting rights are fully decentralized, and your $FLVT token(s) dictate your ownership % and how many votes you get. DAOs are only possible due to Blockchain technology where members can discuss and vote on decisions in a trustless manner. Decisions are final and binding and fair. 1 token = 1 vote. 100 tokens = 100 votes. There’s a huge can of worms I could open by digging into how fair DAOs really are with this system, as one person with a lot of tokens can end up swaying decisions - but that’s outside the scope of this Letter - except I will say that one individual does own a large % of comics, and has stated his intent to burn most of them - the Senior Art Critic known as Beanie.

Love him or hate him - and it seems like there’s very few who fall into the middle ground with this divisive ‘influencer’ - it’s hard to deny that he knows how to succeed and make money in the NFT space, and he seems gung-ho on ensuring that Punks Comics is a success. I believe he owns 10-15% of the total comic supply and could end up with a decent % of the voting power of the DAO. This is just something everyone who burns a comic and enters the DAO will have to keep in mind.

Suffice to say, DAOs are very interesting, and a very exciting and cool (to me) use case of Blockchain technology.

So now we (more or less) know what happens if you burn your comic..

What about Staking?

First up if you elect not to burn your comic, you will get your physical copy of Issue #1 shipped to you worldwide free of charge. The value of these is TBD and highly speculative, and depends on the success of Punks Comics. I would argue that it has already been successful enough that the physical comics will hold some historical value as a piece of crypto/NFT history. If the comic series turns out to be a hit and is still around in 5 or 10 or 50 years then these first edition mints are going to be damn near priceless. That’s a pretty big if though.

Secondly by staking you will be allocated another type of token, $PUNKS, which is an ERC-20 token (aka a fungible token you can trade on an exchange like uniswap). Why might you want $PUNKS tokens? This once again gets a bit complicated, but in laymens terms you are receiving a fractional ownership in 16 Crypto Punks valued at 1,200 ETH:

The amount of $PUNKS you receive will depend on a) how long you stake for and b) how many other people are staking. Let’s look at some tokenomics to see this a bit more clearly.

There will only ever be 100,000,000 $PUNKS tokens. Of these, 25,00,000 of them are going directly into the Founders Vault (so even by burning you get some exposure to $PUNKS), and another 25,000,000 are being retained by the Pixel Vault Team. That leaves 50,000,000 remaining to be awarded to those who are staking their comic.

The 50,000,000 are unlocked on a rolling basis over a two year period. Let’s look at a very basic example of how this might look. If 5,000 people decide to stake their comics for the full two year period then everyone will receive 10,000 $PUNKS tokens. It’s relatively safe to assume that every comic that isn’t burned, will be staked, because there is very little downside to staking and a lot of up side. The intrinsic financial value of 10,000 tokens is 10,000/100,000,000 = 0.01% of 1,200 ETH = 0.012 ETH. This is way lower than the value for burning, so why might you want to stake? Well here’s where things get (more) interesting.

$PUNKS Token holders will also receive 100% of the profits of all future PUNKS Merchandise & Superrare Artwork sales

They do this by using the profits to market-buy $PUNKS tokens. So by staking you’re essentially betting on the future of the franchise and your value will mostly come from the physical copy + future merch sales, with a smaller (imo) percentage coming from the actual value of the 16 CryptoPunks that are fractionally owned by $PUNKS holders. It’s a nice way to give people some CryptoPunk exposure, though, and it’s not impossible that they are worth 20x what they currently are a few years from now.

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PHEW! Are you confused? Because I still am, a little bit. I will try and tie all of this together at the end, but first we need to look at something else cool and exciting which provides value to Punks Comics holders:

MetaHeroes

A month ago the MetaHero project was announced. Everyone knows that avatar projects have been going crazy over the last couple of months so it’s no surprise that we see another one - what is different though is that this one seems clearly a cut above the rest. For starters the artists are legit, Chris Wahl and Todayodious. Secondly, they are planning a lot of utility:

The MetaHero identities are dynamically minted, with substantial future metaverse utility. Traits carry over to 3D full-body characters, interchangeable wearables, and real-life clothing. The avatars are based on characters to be featured in PUNKS Comic Issue #3 and beyond.

Thirdly, there is a direct benefit to $PUNKS holders:

The MetaHero Universe project will contribute 30% of minting revenues to benefit $PUNKS token holders. We anticipate that this will be several hundred ETH worth of funds.

Fourthly, they just look awesome (in my humble and probably biased opinion):

And lastly and borderline most importantly - we know that there is a legit team working behind the scenes to make the project a success. There are so many 10k generative projects being pumped out by anon teams and they could so easily end up being scam/rug pulls. This is not one of those projects.

So, we have a cool avatar project where the minting proceeds will benefit $PUNKS token holders. There’s an additional, and potentially more valuable benefit too - The Mint Pass. Essentially these are passes available to purchase for Punks Comics holders that will allow them to have first access at minting a Meta Hero. The mint price is 0.08 and there will be 10,000 available. There’s no inherent discount or value but if the market deems the value of Meta Heroes above 0.08 then they could end up being quite valuable. The way it will work is that at 11:59pm UTC tonight (July 15th), there will be a snapshot of every wallet that has a Punks Comic, and the passes will be available at a rate of 1 pass per 1 comic to all wallets.

It will be interesting to see what effect this has on the distribution of MetaHeroes and the price of them. There are currently 2691 Punks Comics holders, so theoretically if everyone buys their full allotment, there will be 2,691 unique owners of Meta Heroes. This is already a very high distribution. Most projects that sell out 10k have a 12-20% distribution. In reality, I suspect the distribution will be even higher as a lot of owners with multiple comics might look to sell their passes. The market value of those passes is also going to be interesting to follow.

Minting should open for Meta Heroes sometime tomorrow (July 16). The burning window will also open at this time, and be open for two weeks. You will get your mint pass before any decisions about burning or staking need to be made, so you don’t have to worry about not getting one if you want to burn your comic. The window for minting Meta Heroes will be open for one week, after which any not minted will be open for the public to buy.

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Soooooo should you Burn or Stake???

I DUNNO! But I am about to pull up my trusty spreadsheet and crunch some numbers and let’s see what I come up with. It’s worth mentioning that there is likely a lot of game theory involved in what the correct strategy ought to be, since if more people are burning then you are more likely to want to stake, and vice versa. I’m no game theory expert so I won’t delve too deeply into that, and am only going to look at some more simplistic models. I will also assume everyone stakes for the full two years since it doesn’t make sense not to do that.

Okay there’s a lot of info here, and I made a lot of assumptions. I simply had to. I think/hope the data is fairly self explanatory, but I’ll add some notes on my methods. I took some valuations of the items directly from the Punks Comics website with some light double-checking of values on secondary markets. Prices are rough but should be fairly close to accurate for the value of the founders vault and the punks.

The valuation of the MetaHero mint is 10,000 mints * 0.08 = 800 eth raised, and 30% of that = 240 eth which is going back to $PUNKS holders. I more or less plucked some numbers out of thin air that seemed reasonable enough to me for the value of the physical comic. The future potential value of it is probably like 100 eth if Punks Comics is still around in 10 years, but I took a law of averages approach and accounted for the times it’s worth close to nothing too. I adjusted the value for the comic based on how many there would be (more burns = fewer physical copies = increased scarcity = increased price).

The value of the mint pass I think I am closer to being able to get a solid guesstimate on. It ought to be roughly worth what the market believes the average price of a MetaHero NFT will be minus 0.08. Given the value of a lot of recent avatar projects with far less behind them, I don’t think it’s unreasonable for these passes to be worth 0.4 eth, give or take.

The future value of stuff based on merch sales and potential cool stuff the Founders Vault DAO can do I once again basically pulled out of thin air.

Okay, explanations over. Let’s look at anything we can glean from these numbers. One thing is very clear - the game theory is going to get very interesting towards the end of the burning window. Starting tomorrow, there will be a two week period where anyone can burn their comic, and once that window closes there will never be a chance again to burn a comic for a $FLVT. Clearly, the more people burn, the more you want to be staking, and vice versa.

Taking my reasonable valuation numbers, at a 50/50 breakdown, it looks like Staking is slightly more profitable than burning. This assume a pretty high value on the physical comic - if you take this away, burning becomes more appealing. But let’s go with it for the sake of this thought experiment. If Staking is more profitable, then more people are going to want to stake right? Well then you might end up with a distribution closer to scenario #2 where burning is significantly more valuable. So then everyone is going to want to burn right? Well… the more people that burn, the less likely you are going to be to want to burn else you’ll end up with scenario #3.

My brain tells me that some sort of game theory equilibrium will see us with 60% of peple burning and 40% of people staking. This is all predicated on my numbers/assumptions being roughly correct. I really don’t know what is going to happen - everyone is going to be valuing things differently, and have their own approaches to this game theory battle. One thing we can say for sure though: the market currently values Issue #1 of Punks Comics at roughly 1.2 ETH - the price has been hovering around this mark for the last several days.

Well, I now have a bit more of an understanding of Punks Comics. I’m still not yet sure what my strategy is going to be regarding burning and staking, I’m going to sit and watch what happens over the next few days and plan accordingly. I hope this post helped some people understand this project a bit better. It’s definitely going to be an interesting one to follow.

Full Disclosure: I own 8 Punks Comics.

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What’s on my Radar?

Art Blocks, Alien Clock - This is a fantastic looking Playground drop coming up by Shvembldr, the artist behind The Blocks of Art. Somewhere in a galaxy far away, a multidimensional being is looking at this clock and thinking about the impermanence of existence and the infinity of the universe. 

Mint price 0.10, total mints 362. Drops at 6pm UTC - expect to pay a LOT of gas if you want one (500+).

Junkyard Dogs - Another generative avatar project. They were meant to drop last night but delayed the launch several times due to not having things working the way they wanted - generally this is a good sign imo. I don’t know too much more about the project but maybe it’ll be something. Unsure when their drop is actually going to happen, best bet is to check their discord if you’re interested.

Goblin Goons - The hot new thing in avatar projects seems to be making them deflationary - ie you can burn 2 to get 1 new/better token. This one is doing that. I haven’t been following too much of the others but I don’t think any have been crazy successful yet, but it’s a kinda cool concept at least.

Bruno Banana - These adorable monkeys are something I found yesterday. I missed the drop, but I picked some up on secondary. There’s going to be another drop, at some point, but I don’t know when. I spoke to one of the people working on the project and it is the child of a team of three from south-east Asia who created Bruno almost a decade ago as a line of merch, and are now trying their hands at NFTs. I feel so much better buying something like this than some 10k generative project so will be following along and wishing them success.

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I’m going to end this letter with a link to a twitter thread I wrote yesterday on the topic of mental health, addiction , NFTs and sleep. It was well received and I hope you too find something of value out of my words. Stay safe out there, and remember..

We’re still early.

Disclaimer: The content covered in this newsletter is not to be considered as investment advice. I’m not a financial adviser. These are only my own opinions and ideas. You should always consult with a professional/licensed financial adviser before trading or investing in any cryptocurrency related product.