Decentralizing the minting of Non-Fungible Tokens

How designers and curators can align incentives and create awesome brands and experiences

Ethmoji, a DIY tool to create larger compositions and reward creators.

tl;dr: Non-fungible tokens can capture additional value by decentralizing creation. Cryptoeconomic models align incentives between creators, curators, and entrepreneurs. If we can apply cryptoeconomic models within non-fungible composables, we can incentivize creators with royalties and create experiences that were previously not possible with stand-alone, simple ERC721 non-fungibles.

Minting of Non-Fungibles Today

Non-fungible token (NFT) minting is currently centralized. CryptoKitties decides how many cryptokitties should be minted over a period of time. The Cryptokitties genetic algorithm sets the birthing limit of .008 ETH and decides how many and what types new kitties are minted.

Additionally, new “rare” kitties sold at auction and part of brand experiences such as the “steph curry kitties” are even more centrally controlled. These stunts make money only for the platform and the brand, while ignoring active participants in the cryptokitties ecosystem, the user.

The value for a single user is related directly to the assets they hold, rather than a measure of their influence in the ecosystem. How can we align incentives in the NFT ecosystem to spread value from centralized creators to influencers, creators, and users who makeup this ecosystem?

“In short, broader information economy work will look a lot like Hollywood. (But hopefully, less rapey.) Precious star directors, actors, and specialists will coalesce around a given project, do their thing, then bounce.” — Skin-in-the-Game Tokens by Ryan Selkis

The “Yes and…” game

Improv artists play the “Yes and…” game to work on their improv skills and expand their creativity. The “Yes and…” game works with multiple participant that should accept what another participant has stated (“yes”) to and then expand on that line of thinking. It’s important to affirm what the character before has said is true and build the scene and move the plot along.

Blockchain is no different. If we want to build valuable experiences that are useful to other creators, we need to create assets that may be useful for other parties to incorporate within their own experiences and platforms.

“Layer 2 Experiences” have been built on top of high value non-fungible tokens to further increase its value to users. Userfeeds can make kitties talk to one another, Cryptogoods can physically mint your cryptokitty, Rare Bits and OpenSea and can have you trade them… all without CryptoKitties’ permission.

Valuable Objects Used in Compositions

We can make non-fungible tokens more valuable in two ways:

Extend the blockchain experience by adding compositional relationships on the blockchain. Build an extra “application layer” value at the user interface, allowing for more functionality such as chat and gaming (userfeeds and kittyrace).

We use chairs and tables together quite often because they are a useful known composition. We can sit and do some action in the same place. With blockchain, we can take valuable objects and make them more valuable by placing them in larger compositions.

Non-fungible token value is captured at the collective level

Cryptokitties can be constructed into larger composition with KittyHats. It creates additional value for the Cryptokitty. We can create larger composables by combining different individual useful assets.

Individual creators are applying to be in the kittyhats registry. Curation is done centrally by Kittyhats.

When millions of digital assets are produced, how do creators get listed on Kittyhats? Kittyhats ultimately decides what gets listed for compositions and what doesn’t.

Curation is entirely centralized and tokenization of digital assets are complex. In order to deliver high quality compositions, we must decide what “base components” are valuable.

Now Do It Yourself!

Here’s Nike’s catalog. (disclaimer: it’s imaginary).

Individual shoe designs made by dribble.com/keii

Each one of these shoes designs have been staked by an independent designer using the “Nike Swoosh”, Nike’s (imaginary) fungible ERC20 token. Tokenholders of the Nike Swoosh can vote on which shoe designs should be made available in the Nike catalog.

Users of the catalog do not need to interact with the token (nike swoosh). They can purchase clothing from the registry using ethereum or a stablecoin. Creators will receive royalty fees if their item in the registry is purchased by a user.

Users can now order their new kicks from the catalog. They can combine their kicks with a pair of pants and a shirt from the Nike registry to have a composed outfit. Three different possible creators (shirt, pants, shoes) will receive royalties based on the user’s purchase.

The outfit now represents its own non-fungible token as a curation of different individual pieces of clothing. It’s a composable. If another user wants to use the same combination of clothes, they cannot do so. Decentralized brands will be run by curators and creators using skin-in-the game incentives.

Why the hell is this important?

Curation is already done today. It’s called department stores. Why do we need brand curation to be decentralized?

With a token-curated registry (some good reading here if you don’t know what a token-curated registry is), we can curate individual non-fungible tokens into more useful groups to represent brands. These brands are completely controlled by tokenholders of the registry rather than centralized entities. Brands would become slowly decentralized, run by the curators of the registry.

Curation is important because it minimizes the amount of effort others need to curate. Entrepreneurs who want to hire designers usually go to dribble, a designer community to find designers.

If you wanted to find a designer, you would go on dribble, find one, reach out, and maybe have them do some freelancing work.

With blockchain, you can directly use what’s been curated and designed to create larger experiences and applications. Creators who create base components and used in larger composables or experiences are financially incentivized for their creations to be used.

Token-curated registries are powered by a fungible token used to stake “creations”, good creations are rewarded, bad ideas are punished by the crowd, the list stores the good ideas and becomes more rich and exclusive, and the value of tokens goes up.

A TCR with different composable combinations from different creators and owners of the base components creates strong network effects. There’s incentives for multiple parties to make larger applications and compositions become a reality. Once incentives are better aligned using decentralization, you’ll see brands creating all sorts of experiences, created and curated by a group of individuals with aligned incentives and not brands themselves.

Centralized systems often start out fully baked, but only get better at the rate at which employees at the sponsoring company improve them. Decentralized systems start out half-baked but, under the right conditions, grow exponentially as they attract new contributors. — Chris Dixon

Wrapping it up…

Component building blocks can align incentives of creatives and curators with skin-in-the-game tokens to create a unique consumer experience represented by the creation and composition of user generated non-fungible tokens. The minting and composition of NFTs can also be governed by rules set out by the curators in a TCR. Developers can build applications on top of an already engaged network of users and creatives, adding more value to the ecosystem and potentially for themselves.

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Thanks to Matt Lockyer, Allen Hsu, Jim Waugh, Jess Sloss, gagevalentino, Calvin Chu for feedback.

If you’ve enjoyed this, give me a follow @flynnjamm on twitter where I talk about these sorts of things daily. You can also subscribe to my non-fungible newsletter, Not-So-Fungible Weekly here.

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More reading:

The Emergence of Cryptoeconomic Primitives by Jacob Horne

Crypto Composables — Building Blocks and Applications by Matt Lockyer

Continous Token Curated Registries: The Infinity List by Simon de la Rouviere

Why Decentralization Matters by Chris Dixon