RandomWalkNFT: A Game Theory Exercise
Analyzing RandomWalkNFT’s interesting withdrawal mechanism for minted ETH
Note: This is a discussion regarding RandomWalkNFT’s specific withdrawal mechanism of the accumulated ETH used to mint the images. This is not a discussion about its NFTs or NFTs in general. This is not an introductory post on NFTs.
Random Walk NFTs
RandomWalkNFT is a website where you can mint Non Fungible Tokens (NFTs) that are attached to a one of a kind image (technically two images as well as two videos detailing its creation) created through a Random Walk. The NFTs are minted on the Arbitrum blockchain, a layer 2 scaling solution on the Ethereum protocol. RandomWalkNFT is the first NFT project to launch on the Arbitrum blockchain.
I was linked to RandomWalkNFT through my prediction markets community, and what really caught my attention in particular was how it was designed to handle the ETH used to mint the NFTs.
Withdrawal Mechanism
In order to create an NFT, A certain amount of ETH needs to be used to mint it. In the case of RandomWalkNFT, every new NFT requires more ETH for minting than the previous one. As of November 12, 2021 at 1:00 pm EST, you need 0.0096 ETH + gas fee to mint a RandomWalkNFT.
The 0.0096 ETH used to mint the NFT would be going into this contract, which is accumulating all the ETH used to mint all the RandomWalkNFTs. Currently, there are 7.448 ETH accumulated (~$34,400 USD).
Where it gets interesting is how it is designed to distribute this accumulated ETH.
Every time a new NFT is minted that clock will reset to 30 days. If 30 days pass without a new NFT minted, the last minter address will then have the ability to withdraw 50% of the minted ETH accumulated, currently about 3.77 ETH.
So for a total mint cost of 0.015539 ETH, you could potentially get a return of 3.77 ETH, a 242x return on your investment!
Once the last minter address withdraws, the clock will freeze until a new mint happens. After that new mint happens, the 30 day countdown will restart.
Game Theory
There is a clear opportunity to generate a significant return on your investment with this design, if you are able to execute the correct strategy. This mechanism was designed as an incentive to mint until it gets uneconomically expensive to do so, which in theory should increase the value of every minted NFT so far.
At what point will the market decide that the cost of minting is too expensive to attempt to acquire the minted ETH locked for withdrawal?
Once 50% of the ETH minted is withdrawn, will the market attempt to mint in order to have the opportunity to withdraw 50% of the minted ETH remaining in the contract?
Will the minted ETH ever be withdrawn in almost its entirety?
I am trying to figure out the answer to these questions. Regardless of whether I figure it out or not, I am fascinated to see what happens.
This is not investment advice. For informational purposes only. At the time of publication, I owned two Random Walk NFTs
So, basically a Qbid auction writ large?
What’s a Qbid auction? Haven’t heard of it before.
Sorry, it’s spelled QuiBids.com
You can check out the FAQ there for the full details.
What happens to the other half? This seems underspecified as you’ve described it.
It stays in the contract until a new mint (called it mint B) happens. Then the 30 day clock begins again. If no new mints happen in those 30 days, then mint B takes 50% of that 50% remaining.
Well maybe I’m missing something, but the game theory doesn’t seem that interesting to me. And calling it a ‘return on investment’ seems a bit generous for what is really just a game of blockchain chicken. In fact, it might be as crazy as a dollar auction where people might end up bidding more than what half the accumulated contract is worth due to sunk cost fallacy or other irrational behaviors.
Either way, you’re not really buying anything of value here: you’re just betting that the auction gets so little attention that you can walk away with free money, or else you’re financing someone else’s eventual bad decisionmaking (possibly your own).
You say “which in theory should increase the value of every minted NFT so far”, but I don’t see how. What additional value is added to a previously purchased NFT by someone purchasing the next one? If anything, each incremental minting makes the previous one worthless (unless you ascribe some inherent value to owning an arbitrary NFT). In fact, every NFT in this game is a badge of shame except the one that that wins the pot, and even that one could be shameful if it cost more than the pot was worth.
It seems especially insidious that the game perpetuates itself by trying to get people to restart the bidding war again with the other half of the prize pool. You didn’t say whether the price of minting resets after half the pool gets claimed, but either way it’s terrible: either the price resets and make the next bidding war even more furious and ties up even more people/funds, or it doesn’t and makes it more likely that the other half just sits there unclaimed forever because it costs more to mint the bid than you’d see in return, but I don’t see how this ever ends well for anyone.
On the other hand, one could view this game as punishing greed at a meta level: at first it looks like you get a free 242x return, but at best you realize you’ve only thrown away $500; at worst you end up much deeper in the hole you tried to dig your way out of. Not sure I approve of the ethics of this punishment, though.
Anyway, it seems clear to me that the correct strategy is to not mint the next NFT. Get some popcorn and watch; the entertainment value to others is the only real value in RandomWalk.
Yeah, hasn’t this ‘timer unlocks deposit’ game been run many times before? Either it lapses from lack of interest, or eventually the pot gets large enough for someone to pay a miner enough to lock in the necessary blocks to cash it out or DoSing rival transactions or something like that.
Actually, the worst thing would be if the price of the minting increases at a rate slower than the value of half the pool grows. Then every next bid would still be “in the money”, and then whoever doesn’t go bankrupt first wins. This thing could eat the whole world. Terrible. Kill it with fire.
The price of minting will increase a little slower than the growth of the pot, but it will never reach a value greater than about 450x. It would approach it asymptotically.
It would be interesting if several participants battle with each other for a while. Then, when they are worn out, tired and out of funds, a new participant claims the pot with a single mint at the end :)
I shudder to imagine the mutual funds created to fund bids on this thing.
How hard do you have squint to not see this thing as pyramid-shaped? This thing is like Sierpinski’s pyramid. It’s fractally a scam; a scam at every conceivable resolution.