Letter 20 - Why? Why did I buy that?
Some insight into how I evaluate projects
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I get a lot of people asking me a lot of questions about a lot of things. By far the most common question I get lately is “why did you buy this NFT”? This Letter will seek to answer that impossible question.
There’s a lot to unpack, so let’s dive right in.
First, a warning. Just because you see something in my wallet, or just because you see somewhere that I “minted” it, does NOT mean that I bought it.
Let me repeat that.
First and foremost, just because you see something in my wallet, or just because you see somewhere that I “minted” it, does NOT mean that I bought it.
There’s a growing trend in the NFT space right now where malicious actors will send NFTs to influential wallets to make it appear as though that person invested in the project. They can mint directly to our wallets, to make it appear as though we bought them. Their hope, usually, is that someone sees this activity and looks into the project and decides to buy.
99% of the time the thing you’re buying is a scam. The only people buying it are others that are tracking wallet activity. There is no community, no roadmap, no future. Often, the NFT itself is stolen artwork and can be removed from OpenSea (not from your wallet, just from being visible on their platform).
I wanted to put this warning up front because a lot of people have unfortunately been getting burned by this.
What’s important to me?
I’ve spent a long time thinking about what makes or breaks a project, or what is most likely to set something up for long term success. Here are the top 6 most important things, in my opinion, in order of most important to least important:
I bet this will surprise some people, perhaps most people. Something I hear a lot in discord and when chatting to someone about a project, is that they will say “I don’t like the art, so I am not minting/buying that”. That’s fair if you’re buying a piece of art you want to hang on your wall, or use as your profile picture. I think it matters less when you’re considering buying an NFT from an investment perspective, and even less when you are buying an NFT that is a “collectible” more than it is a “work of art”.
Art is subjective. One person’s trash is another person’s treasure.
You are investing. If you’re a collector and you want to buy NFTs that you like and appreciate and don’t care about selling them in the future for a profit - then sure, you should buy things that appeal to you. I’m betting that 95% of people reading this now are buying NFTs in order to make money, or to be a part of a community, or a movement. The art isn’t usually a significant/deciding factor for these things.
Okay, so you don’t care that much about art, but surely the ever present roadmap that every project has must be good in order for you to consider investing, right? Eh. These days almost every project has much the same in terms of a roadmap.
10% - we give away 5 NFTs!
25% - we fund the community wallet with 10 ETH.
50% - companions are coming! in 3 weeks you’ll get a new NFT drop!
75% - we fund the community wallet with another 20 ETH!!
100% - we launch merch, a comic book, and lately, a DAO and we’ll yield $FREEMONEY tokens for anyone that stakes their NFT!
A good roadmap does not a successful project make.
A good roadmap well executed is what can take an already successful project to the next level. Roadmaps have some importance, but I barely even read the roadmap of a project I am looking to invest into any more. I’ll skim it and see if anything revolutionary stands out (9 times out of 10 it doesn’t) and then move on.
Okay, so if I don’t care about the art, or the roadmap, or the price (some of the best projects have been free to mint, or 0.02, or 0.08, or 0.10, or 0.20, or 0.40, etc) - then what’s left? The Team and The Community.
Or to boil it down even more: the people.
Bet on people. This is something all the smartest and most successful people in the NFT space (and probably in the business space, and just in life in general) will agree on - bet on people.
If a project has an anonymous team then this is a red flag. It’s not a deal breaker, but it’s a red flag. Anonymous teams can and have been very successful - but it is much harder and takes more work to trust and have conviction in an anonymous team than it does when you can clearly put a face to a name and see the previous work a person has done.
One of the first things I do when evaluating a project is to go to their website and see if there’s a “team” page or section and read about the people behind the project. Then I will go to their twitter profiles and read their recent tweets. I will go to their linkedin page if it’s available. I will then join the Discord and read all the announcements that the team has made from the launch of the discord to now.
I want to know the people behind the project. I want to know how they conduct themselves. I want to know what their history is. Have they worked on other successful projects in the crypto space? If this is a gaming NFT, do they have experience launching games? Are the people friendly? Are they passionate about the project? Do they seem like good human beings? These things matter.
After the team, the next most important thing to me is ‘the community’. We’re living in an age ushered in by the Bored Ape Yacht Club where a tremendous amount of the value for any given NFT project stems from the community. There’s power in numbers, there’s power in the network effect. That said, pure numbers is not enough. There can be a discord with 50,000 members that I think has an awful community, and one with 500 members that seems fantastic.
There are no hard and fast rules when it comes to evaluating how ‘good’ a community is, but here are a few things I look at and think about:
How active is the discord community? Numbers can be faked, conversation is much harder to fake. Good conversation is harder still to fake. A lot of projects will now pay for bots to inflate their discord and twitter follower numbers but what they can’t do is fake organic conversation. I want to join the discord and read their general-chat and other channels to get a real feel for how active the community is.
How how active is the discord community? No that’s not a typo - I want to know how the community is being active. If the chat is flooded with coked up monkeys spamming “pump it up” gifs, yelling “delist” or “list at 1 ETH!”, and is generally chaotic and only focused on price and money... this is a bad sign. This signals to me that the entire project is built on a house of sand and that at the first sign of trouble all the holders will panic, undercut the floor, and move on to the next project looking to make a quick buck.
On the flip side if the chat is full of people talking about how much they love the project, the future potential, the team, the art, one another - this is a good sign. If they talk about how much conviction they have; if they are supportive of one another and encouraging and welcoming to new members, if they really care about the community.. this, this is the type of project I want to be involved with for the long run. It might not have the hype and mania to see explosive short term growth, but i’ll take a steady and organic growth to a 1 eth floor any day over a project that goes from 0.03 to 2.5 in a few days (because this will almost inevitably come crashing down).
It’s worth noting that even on the best projects, there will be talk about the floor price. It is inevitable and inextricable for most people not to conflate the worthiness and success of a project with the floor price. It is also exciting and most people, myself included, enjoy and get excited when we see “number go up”. There’s a huge difference though from genuine excitement at more people finding, appreciating and buying into the project and having that be the reason number go up compared with a hyped pump because some influencer or group decides to ape into a project and it’s an artificial pump. One of these things is not like the other.
The best way, to my mind, to really understand the people behind a project - both the team and the community - is to join their discord server and talk to them. We’re all human beings here, we’re all capable (hopefully..) of having a conversation. Do this enough and you still start to get a feel for what a long-term successful project looks and feels like and what a short term pump looks like.
Now, it’s not to say that projects that get massively inorganically pumped aren’t successful, or can’t go on to be successful. If you mint a project and the chat is chaos and the floor price goes up 10x and you sell that’s a pretty big success by any financial metric. My point is that this success is usually short lived, and you are usually hoping to “sell the top” or “jump ship” before everyone else does - since 99% of the people are also only there to make money. You’re trying to time the market, basically. It’s possible, you can do it successfully, but boy is it stressful, and risky.
My advice to look for projects with solid people fundamentals is more akin to value investing. If the team is good, the community is good, the roadmap is good yet the price goes down? Consider this an opportunity to buy. A fantastic product just went on sale. I’m reminded of the Mr. Market Allegory from the excellent book The Intelligent Investor by Benjamin Graham.
The NFT market is incredibly fickle and volatile, or to use the above example: manic-depressive. Prices for any given project will fluctuate 20-50% on a daily basis and nobody will bat an eye. You can buy something for 0.30 ETH today and watch the floor price drop to 0.18 ETH a couple of hours later and this is a very common occurrence. If you had conviction in the project to buy at 0.30, you ought to consider the drop to 0.18 as a fantastic new opportunity to buy more (assuming the drop isn’t related to some fundamental shift in the project or some unfortunate news being announced).
Over time, if your conviction is right and the project is solid, some of your most significant gains will be from “buying the dip” or buying when a project is on discount due to the market being fickle and inefficient.
“In the short run, the market is a voting machine but in the long run it is a weighing machine.” - Ben Graham
Seriously.. bet on people. If you take nothing else away from this letter, just remember those three words. Bet. On. People.
Okay okay okay - we’ve spoken about the team, and we’ve spoken about the community. What’s left? I guess I should touch on the roadmap. A roadmap is is essentially a rough plan of what the team hopes to do in the future. It goes without saying that if the team is inept, the roadmap is moot. They won’t be able to execute on it. I’ve yammered on enough about how important the team is though - what do I look for in a roadmap? What excites me?
First and foremost, I like something different. It is very commonplace and very easy for projects to copy the roadmap from previous, successful projects. Some amount of copying is natural and makes sense - previous innovators have pushed the needle and laid the groundwork for what can make a successful project. There are some initiatives that I think are fantastic to see in any roadmap - giving a % to charity being at the top of that list, and others which are just “good’ or “nice” to see - a community wallet, free airdrops, a DAO, a token. These things are not special, though.
For a project to excite me to the extent that I want to invest a lot into it, I want something different; something that separates it from the crowd, because boy, is the space for new NFT projects crowded. The thing that separates it doesn’t need to be in the roadmap - it could simply be the team itself. Sometimes a project has no roadmap, and that’s fine too. Some of the greatest successes have come from no roadmap, or accidental roadmaps: did Picasso have a roadmap? Did Michelin, a tyre manufacturer, set out to have a guide rating fine dining restaurants?
An excellent roadmap is nice, but not necessary. A mediocre or stock-standard roadmap hurts a project more than it helps it, in my eyes.
Let’s take a look at a few projects that I have invested significantly in lately and see if we can spot some of the things I mentioned above.
This is actually the project that inspired this post. Last weekend we saw a flurry of so-called “women NFTs” (projects created by women, aiming to address the significant diversity issue in the space) getting attention. There was Sad Girls Bar, Crypto Chicks, Encryptas, Boss Beauties, and probably some others too.
Of them all, Boss Beauties interested and excited me the most. I missed the mint. I simply wasn’t keeping up with all the new projects dropping, and only found out about it shortly after it sold out. So I started buying secondary, a lot, and that’s when people started asking me why.
The really simple and basic answer is to just have a look at their website. All the information is on there. I’ll break it down though.
Real people. Better than that, real people with experience. The team has been working for ten years on building their community under their company My Social Canvas:
For ten years we have been building a global family of the next generation of women and girls. This family of Gen Z social entrepreneurs, designers, and change-makers are at the heart of everything we do.
My Social Canvas is on a mission to make a difference providing mentorship programs and internships to women in High School and College, while creating fashion accessories to fund scholarships for women in the community.
The Boss Beauties NFT Collection is an extension of the same passion and goals we have championed for the past decade. Proceeds from primary and secondary sales will go back to supporting the collection and token holders, as well as continue our mission to support young women in designing the life and career they love.
I mean.. this really seemed like a no brainer to me already in terms of the project already being so far ahead of the curve compared to 95% of other NFT projects dropping.
The community. This can be hard to evaluate before a project sells out (sometimes), since there often isn’t a significant community presence - but if there is, that’s all the better. Since I missed the mint for this one I had the chance to pop into their discord and be a fly on the wall for a while before deciding if I wanted to buy in or not. It was (and still is) full of warmth and good vibes.
The roadmap. I’ll be honest and say that nothing on the roadmap is particularly exciting to me. The ability to get access to private masterclasses and 1 on 1 chats with high level executives is pretty new and interesting and I am sure exciting to others. The book club is a cool community focused initiative. There are two things that do stand out to me though on the roadmap / website:
I don’t think the value you might get from royalties is a significant deciding factor in whether to purchase a Boss Beauty or not. What I do think is significant, though, is the fact that their company My Social Canvas they have already, previously made partnerships with some HUGE companies: Verizon and Target. This gives me confidence for their ability to navigate the business world for Boss Beauties.
Furthermore, this bit of info on their home page was/is a real differentiator:
This once again highlights the ability of the team to make real connections and grow the brand. I spoke a lot in my previous letter on Art Blocks about the value of brands in the NFT space. I want to invest in projects where the team is conscious of this and able to build their project into a massive brand. The NFT space also loves to pay a premium for anything with historical significant. Having the first NFT art hung in the Art Hall at the NYSE seems historically significant to me.
One thing worth mentioning at this point is the enormous diversity imbalance there is in the NFT space. Take a look at this twitter poll I made last week:
I probably made a mistake having ‘other’ in there since so many in this space will jokingly refer to their identity as being an Ape, or a Cat, or Lion, or Toad. Nonetheless, it’s clear that women are significantly under-represented in the NFT space. I’m not saying this in and of itself is a “problem that needs solving” - the facts speak for themselves, and I think the NFT space naturally attracted more men than women. The problem that does need solving, though, is the culture and environment that we as a community have created.
By and large most NFT projects are catered towards men. This is evident just based on the traits alone and the ratio of male to female avatars generated in any given project. There are of course many exceptions but generally speaking, the NFT space is not a very diverse one. Supporting projects that are founded by women, and/or are fostering an environment of inclusivity, is something I think we can all get behind.
There’s an elephant in the room in the form of the question: “but if you’re buying these now, isn’t your expectation that the price will go up, and therefore in the future if someone wants to buy into the project they’re going to have to pay more? how is that inclusive?” - this is an extremely valid and fair point, to which there is no excellent answer. Yes I invested/bought into the project in part with the mindset of eventually selling some of my NFTs for, hopefully, significant profit. Yes, this means that others that want to get involved with the project and community will have to pay more later down the line. The reason that they would have to pay more, though, is because the project has been successful.
The only way a project reaches that point is by having enough people willing to buy into it at an earlier price point. We are taking a risk. Every time any of us buys an NFT as an investment, we are taking a risk. The more time that goes on and the closer a project gets to “blue chip” territory, the less risky investing in it becomes. When someone wants to get involved with the project at a higher price point they are paying a premium for the (usually) months of growth and value that has been created, and for investing into a less risky project.
The risk is not only that the project might be a failure. The opportunity cost is significant. When someone invests in an NFT they are not only taking on the risk of that NFT, but also the risk of missing another opportunity that they could have capitalized on had their liquidity not been tied up. One of the most common rules you’ll hear any ‘OG’ in the space say is that you should always be liquid. You never know when a fantastic opportunity is going to pop up out of the blue - a stealth launch, and item listed way below floor, etc. The opportunity cost of investing early is real.
Last point on this topic, this is directed more towards those that are creating or already have established projects: consider ways to allow new people to enter your ecosystem at a lower price point. A lot of projects are already doing this - one major example is the Mutants by the BAYC. For many people being a part of the BAYC family is just not feasible due to the high price point. “That ship has sailed”, so to speak. The introduction of the Mutants has allowed a lot more people to join the family at a much lower price point. Yes, it’s still exclusive (the floor is ~4.5 ETH right now), but it is 10% of the cost of an OG ape.
The standard supply for most projects these days is 10,000. That is not a lot of people in the grand scheme of things. Given that there is power in numbers, and the network effect, projects would do well to find creative ways to expand their ecosystem in a way that rewards existing holders but allows for new entrants to join at more inclusive price points. In fact, something a few projects are doing is to allow people that can prove they are building something for the community to enter the ecosystem. Rather than paying with money, you could pay with time, or ingenuity.
I could write for hours on this topic; but I have digressed enough. Back to the Boss Beauties. I missed the mint. I started buying them on secondary, from floor pieces at 0.12 up to 0.25 and rarer pieces up to 2 ETH. The floor price has yo-yo’d up to over 0.30 and down to 0.17 and everything in between. If and when it drops to the lower levels, I look to add more to my already large collection. If and when it goes higher, I am content to hold. I believe in the long term vision of this project and believe in the team’s ability to execute, and have no intention of selling any time soon.
Current holdings: 43 Boss Beauties.
This is just such a fantastic project through and through that from the moment I found it, to now, I haven’t wavered in my conviction that it’s going to be a huge success.
The Team. Err, I actually don’t know a lot about them. Say what? Isn’t that a red flag? Yes it’s not ideal that there isn’t a “team” page on the website with info about who is behind the project - but sometimes the work can stand for itself, which is the case with this one. Immediately upon going to their website you could tell they had put in a lot more work and effort than the standard 1-page website. So, what is it anyway? In their own words:
Welcome to the Nifty League! Our mission is to create a leading NFT gaming platform through community governance and development. Nifty League prides itself on being one of the first GameFi platforms offering interactive play-to-earn games with customizable characters; not just another pfp drop...
There’s a lot of buzz words in there but to cut to the chase - they plan to launch play to earn games using NFTs. More importantly, they have already released a freaking game. This put the project sooooooo far ahead of almost anything else on the market - instead of having in their roadmap for Q1 2022 “release a game”, they freaking launched with a ready-to-play game. It works, and it’s great. It’s currently only available to play locally but they say that online multiplayer will be available by the end of the month.
When I see something as significantly developed as this, I take notice. I didn’t immediately mint these, though. I joined their discord and I wanted to find out a little more about the team, and the community. I noticed that it had been open for minting for a few days and hadn’t sold out - why? Was the product not desired by the market? Was there something wrong? Or was there another reason?
The crux of it seemed to me that the minting process was different to every other project. Instead of putting in a number of how many you wanted and clicking “mint” and getting 20 NFTs, you actually had to mint these one by one, and you could customize them to your hearts content. It took time. More than anything though, the minting process was fun.
When I joined the discord I saw people sharing the things they had minted, talking about the game, and being excited for the future. Nobody was crying or complaining about the project not having sold out, or the floor being lower on secondary than it was to mint. Everyone knew the project was awesome and was just happy to be a part of it and to have ‘found it early’.
The team was active in the discord. They were posting announcements, interacting with the community, and talking about their plans for the future. They were open-minded and receptive to feedback. It was really ticking all the boxes.
So, I started minting, and I was having a blast - I probably spent 2-3 hours minting my degens. I eventually decided to tweet about the project because I knew others would love the experience, and want to know about this project. I don’t often tweet about specific projects and when I do it is usually because I have a lot of conviction and belief in them.
There is a lot more planned than just this first game. They are building a decentralized gaming platform and have plans for many more games. There’s a DAO, there’s a token; all the good stuff. A lot of projects talk about these things - some can deliver, some are just putting buzz words into their roadmap to get the sales and plan to “figure it out later”.
The fact that the Nifty-League team has already created and released a game gives me a lot of confidence in their ability to deliver on everything else.
Current Holdings: 33 Degens.
This is the ultimate case of “bet on people” for me. I took one look at the website and decided I want to mint these. I did 5 minutes of further research and decided I want to mint a lot of these. So what are CryptoMutts, and who is behind it?
CryptoMutts is a collection of 10,000 randomly generated NFT’s on the Ethereum blockchain. Adopting a CryptoMutt includes membership to the first NFT Arts Club. Members will receive early access to art content from the creator Kenny Schachter, including art market articles and future NFT airdrops exclusive to holders.
Owners receive 100 $NFTism token for each CryptoMutt they mint. Tokens can be traded on Uniswap in exchange for Ethereum. $NFTism is the official token of the NFT Arts Club and can be traded for perks such as merch and members-only NFT’s. $NFTism tokens can be claimed once minting has concluded.
Here we with the antithesis of an anonymous team. We have a well established artist putting his name and brand, not to mention heart and soul into a project. A quick look at his website and I saw how passionate he was about NFTs, and identified that this was not some ‘celebrity/artist cash grab’. He genuinely loved NFTs.
This was enough for me to mint. I minted 60. The mint price was 0.03, and it seemed like a no brainer. How could this not do well? In the several days that followed, the floor price tanked. I think it dropped to 0.01 at some point. My best guess: people aped into the project hoping for a quick flip, and since there wasn’t the usual hype/fomo or influencer pump it didn’t really see explosive secondary market action, and they panic sold.
Meanwhile the smart money was in Kenny’s discord reading his updates and announcements and buying the floor (or just holding). Sometimes it requires a leap of faith and belief in someone, or some people, to get the tremendous gains we see in this space. With Kenny speaking with such passion, it was easy for me to take a leap of faith on him:
There was also some issue with the metadata after the reveal - i’ll be honest and say that I really wasn’t checking in on the project much during the few days after launch. I had a decently strong conviction that the project would do well given time, and every announcement made by Kenny just furthered that conviction. I mean seriously, I’m gonna post some more just because I love his energy so much (and clearly the community loves it too, and has rallied behind him):
Current holdings: 60 CryptoMutts.
So there you have three recent examples of projects that I invested in, with my reasons for why I like them so much. This does not mean they will be successful. There is so much randomness and luck in this space that sometimes the projects that “seem” like they “should” do well, end up faltering and fizzling out (RIP Ethlings). Meanwhile a frog project will launch out of nowhere with an anon team and a roadmap they’re making up on the fly (pun intended lmao) and because the right 4 crypto twitter influencers all get behind it, it will 10x in a few hours. Those opportunities are around to find and take advantage of too and I sometimes try to get in on them - but it is a much riskier game, a much more time consuming game, and I am never comfortable holding those projects long term.
I’m comfortable holding my Boss Beauties, my Nifty-League Degens, and my CryptoMutts. Why? Because I did my research. I looked into the team and what they have delivered and promise to continue to deliver, and their capabilities. I have spent time in each Discord chatting with community members and getting a feel for why others are attracted to the project. I got to know the people involved with the project.
I bet on people.
And I think I bet on the right people.
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.
Additional Disclaimer: Clearly I own a lot of the three projects mentioned in this post and my incentives are aligned with the projects doing well. I am not endorsing or recommending anyone to buy into these projects at their current prices, or at any prices. I am merely trying to illustrate why I personally bought into them. I did my research, and I have my own conviction and faith in them. If you fomo buy into the projects without doing your own research, you won’t have that conviction, and it will be much harder for you to hold and believe in the project long term without getting stressed out about short term price fluctuations. Please do your own research before making any financial decisions.