Author: Decentralised.Co
Compiled by: TechFlow
Short Game
Earlier this week, friend.tech withdrew the ability to change fees or features of the product. In layman’s terms – the product is unlikely to change in the future. If the network of token holders were able to make changes to the product, there might still be hope. But as of now, this is no longer the case.
One of the attractions of friend.tech is that it benefits its users. A wise man once said that the best way to quickly grow a crypto community is to make your token holders rich. The friend.tech model enables everyone to "become" a token and receive a portion of the revenue. To date, the platform has generated nearly $98 million in fees, half of which has gone to users. Sounds promising, right?
Actually, it’s not. The problems in friend.tech’s model were already there before the token was launched. Data from DanielW_Kiwi at DuneAnalytics provides some clues as to why.
In October 2023, when friend.tech hit the mainstream market, the product had an 18:1 buy-to-sell ratio. When there are 18 people buying and only 1 seller, the laws of economics dictate that the price will go up. By the time the token was launched in May, that ratio had dropped to 0.32, or 3 sellers for every buyer. As of last week, that ratio dropped to 0.14.
friend.tech can be classified as an ephemeral game that lacks permanence. For those who are hearing this term for the first time - ephemeral games are short-term games with financial incentives. Some products have formed an entire category. No doubt hashed_official is the example that comes to mind.
Think of pumpdotfun as the Costco of tokenized offerings, offering cheap, fast access, and convenience. Launched in May, the product accounts for 65% of all decentralized exchange (DEX) transactions on Solana, according to hashed_official. In addition, the product has generated nearly $100 million in revenue. To date, nearly 2 million tokens have been issued through pumpdotfun.
Pump democratizes token issuance. Previously, users had to go through a listing process on centralized exchanges, but now Pump has made sure that this can also be achieved using DeFi infrastructure and on-chain liquidity.
Obviously, this comes with risks. Token launches are often plagued by “rug pulls,” a situation where developers simply withdraw liquidity and sell off users’ tokens. Ethervista takes a different approach by allowing token issuers to receive a portion of ETH from transaction fees, while liquidity providers (LPs) receive ETH.
In 2023, LooksRare adopted this approach for its platform fees, with stakers of the token receiving LOOKS tokens. However, this story did not end well, as wash trading on the platform suddenly stopped. Ethervista also requires token issuers to lock up their tokens for at least five days.
As of now, activity on the platform has subsided. According to Dune data provided by 0xToolman, transaction volume has dropped from 3,300 transactions per hour to just over 160. The total ETH on the platform has dropped from 540 to 160, a change that occurred in a week.
All of this makes one wonder, what are the rules of the short-lived game? Are they just short-lived, highly financialized Ponzi schemes that come and go quickly? Is a sustainable approach really possible?
Basically, these platforms have three characteristics:
The frequency of transactions is high, which is particularly evident in Pump.
The “reason” for trading is often based on emotion. For example, you can’t quantify why someone would buy a meme coin on Pump. Volatility is its product.
They have a short half-life. By the time the token is released, the community on friend.tech has shrunk significantly.
All of this reminds me of the glory days of NFTs. According to hildobby_’s Dune dashboard, the average fees generated by NFTs (on the EVM network) dropped from over $3.2 million per day to $200,000 per day, a drop of nearly 95%.
This model is interesting because it provides a way for creators to continue to earn royalties from their work and build meaningful communities. In contrast, the memecoin season in Q2 2024 was driven by celebrities who frequently talked about their own tokens, which plummeted by 90% in a few weeks.
Products like Pump and Ethervista simply remove the trappings of traditional communities and build hyper-transactional products that pay creators in return.
Can such a model scale? We are still unsure about its sustainability. But if Pump and Ethervista are any indication, it’s that the market has a need for volatility. As long as the market is willing to pay for these tokens and accept the associated risks, we will continue to see them. Or, as with ICOs and NFTs in previous cycles, they may fade as the market realizes the associated risks. Only time will reveal how short-lived these games really are.
