Our speculation that round #1 of viral blockchain-based ponzi game Fomo3D would go on forever and ultimately lock up all ETH in circulation was quickly disproved this week as a winner eventually emerged, pocketing a whopping jackpot worth 10,469.66 ETH (just over $3M at the time).
The "largest legitimate on-chain jackpot in dapp history",according to Team Just.
The jackpot was actually closer to 23k ETH, but the game mechanics are such that only 48% of the pot goes to the winner, with 2% going to reward Team Just and other contributors and the remaining 50% being allocated depending on the team selected by the winner at the time of the key purchase, with part of that pre-seeding round #2 pot.
A big driver of the game play, other than the final jackpot, was the promise of 'dividends': over the course of round #1 c. 75k ETH were re-distributed to earlier players. My rough calcs using the leaderboard linked from the site show that only 6,565 our of the 22,355 addresses that participated (ie 29%) withdrew more than they paid in. Other than the winner itself, this other address seem to have done pretty well for itself, having taken out 1.6k ETH for an 8.2x return (after purchasing c. 540k keys), but this one address got burned pretty badly, having purchased 1.2 million keys spending over 3k ETH and only taking out 2k ETH, so losing 1k ETH. Both were clearly operated by bots given the sheer amount of activity performed. Here's the data dump if you want to have a play with it.
So, how did round #1 end? It resolved in a relatively non-dramatic way, for once: it didn't involve miners collusion, nor it seems to have turned into an exit scam by Team Just (kudos), nor in a major hack of any sort, as many were anxiously preparing for. A super smart manual player simply outplayed the bots by studying their behaviour and then executing a very clever strategy. The article linked above by SECBIT Labs outlines the mechanics in a fair bit of details, while this post by Team Just in their Discord channel adds some more colour:
TL;DR. According to SECBIT, after purchasing a key, the attacker would then actively stuff subsequent blocks with a small number of abnormally high fee transactions (directed to a smart contractcreated by the attacker on Aug 18th) that would ultimately fail after using up the block gas limit, to ensure no one else could purchase a key after him/her. But the attacker didn't do that indiscriminately: according to Team Just, the winner literally tricked the bots into submitting low fee transactions by controlling the weighted average gas price across the block, after figuring out the bots were trained to act based on 'fast' and 'standard' gas prices. Until the Fomo3D timer ran out. A modern day genius.
Some more numbers. By the looks of it, 66 blocks were mined between the one that packed the winning key transaction and the one that packed the transaction that ultimately drained the jackpot, spanning over approximately 16 minutes. It's unclear how much the attacker spent on fees for stuffing blocks in the lead up to winning the jackpot. I counted just shy of 20 ETH in fees only for transactions sent to the smart contract during those 16 minutes (plus 40-50 ETH spent in the prior week in 'penetration testing' according to Team Just), but it's also possible that the attacker made multiple attempts before that with other addresses and contracts that cannot be connected to the ultimate winning one. The leaderboard shows that the winning address itself 'only' purchased 143 keys for just shy of 0.8 ETH in total. The attacker smart contract also played an active part in the strategy, calling out to the Fomo3D contract for data like who the last buyer was and how much time was left of the clock. Considering that the contract performed close to 6k transactions, or approximately 1.25 txs/minute from when it was created until the jackpot was drained, it's mind-blowing that a manual player has been responsible for executing this complex and cleverly orchestrated operation. It would not be surprising if this was a team effort.
So. Despite it being a zero-sum, scammy ponzi-like game, we feel like we've learned a whole lot from it and the next iterations or clones of this game will no doubt include improvements and innovative game mechanics, pushing the envelope even further: if there's one overarching takeaway for those designing economic models is that if it can be gamed, it will be gamed.
Ultimately, as Nathaniel succinctly summarised, "...gimmicks, hacks and games tend to be the petri dish where interesting innovations are born that would have previously been pre-empted by considerations of propriety or preposterousness." 👌
Interestingly, some are now suggesting that Fomo3D-like game mechanics could be adopted as bootstrapping or retention tools in other networks (e.g. a growing pot to reward the last Augur reporter).
--- PS: thanks to SECBIT Labs for the awesome analysis, and to Team Just for oiling up our brains for the past few months.
PPS: TokenAnalyst also produced a great analysis reaching similar conclusions to SECBIT.
This essay is a natural follow-on to the one above. With a very logical set of 12 concatenated premises, the authors concludes that a crypto asset can only accrue value if it becomes a "competitively superior non-sovereign monetary store of value", and that the distribution of assets of this type tends to look like a power law (ie winner takes all/most).
The authors add that privacy coins can potentially capture some value that does not overlap with the winning SoV and that the native token of some smart contract platforms may become a SoV candidate.
(As you may have noticed, this view of the world, first cogently articulated by John Pfeffer last year, has become increasingly popular in the current market environment to the point of not feeling contrarian anymore).
We particularly liked the closing lines, which open up the possibility of new use cases:
"...future use-cases will emerge that are binary and non-overlapping with Bitcoin, such that the native tokens can carve out their own share of the global store of value market. Technological progress has always been easier to invent than predict."
Speaking of tribes aggregating around market narratives, here's yet another Tony Sheng classic. This is becoming a weekly occurrence, as you may have noticed.
If you have spent any time on crypto Twitter all this will resonate so well that you'll end up reading it from top to bottom in one go, nodding all along. Things like religious certitude in ones beliefs, purposeless antagonism and tendency to switching 'tribes' with the flavor of the month will make a lot more sense with the framework on the psychology of mass movement outlined by Tony and borrowed from Eric Hoffer, the author of “The True Believer” (on more to add to the Goodreads list).
So, before you pick up on your next Twitter troll or animated Telegram argument, be mindful of the psychology at play.
Speaking of collective decision making, Tezos explains its approach to Futarchy as a governance scheme.
It uses some weird language to make sure that they are going to be mindful of current laws and regulations, in tune with their recent KYC debacle. I'd love to know how deep in problems with law enforcement agencies they have to be.
Fun fact: Futarchy was named by The New York Times as a buzzword of 2008.
In a Futarchic model, there is a prediction market for policies to be implemented. There is then a vote later on, after the policy has been implemented, about how good it was.
To me, this seems way overcomplicating things, but who knows.
As always Bitmex research team delights us with incredible data driven pieces.
Though not 100% conclusive, in this one they provide some evidence to suggest that the 'dominant' BTC miner from 2009 (potentially Satoshi) mined less than what previous research suggested (600-700k instead of 1m).
Simon de la Rouviere explores a way to implement Harbinger taxes to patronage on Ujo Music.
Very cool to see abstract ideas being applied to real-world use cases.
In this case:
- Every musician has a single patron seat. - Anyone can buy the patron seat (to become the singular patron & gain the privilege of being the patron). - Upon buying it they have to self-assess the value of this seat (being the patron). - During the tenure of being a patron, this patron has to pay a percentage fee (say 5%) of the self-assessed seat value per year as their patronage to the musician. - At any point in time, someone else can buy this patron seat at this self-assessed value, changing ownership. - Upon being “dethroned” as the rare patron for a specific musician, that patron earns a collectible “Post-Patron” badge, signifying that they were a patron at a certain point in history. They just join the “Patrons Club”. - They can choose to sell this collectible if they no longer want it.
A great essay taking stock of the various forces that have driven the market so far this year and will likely continue to do so for the near future. Of particular note was the commentary on Bitmex, which resonated this week given what happened when the exchange went on maintanence mode.
According to the author, the light at the end of the tunnel will go on only with increased transparency and standardization across the industry:
"Ownership statistics, inflation rates, supply schedules and vesting schedules for early investors should be made more transparent for token valuation purposes. The sooner that we can move to a more standardized and open valuation framework the better. This rigor will increase transparency, reduce volatility, enable institutional capital to be invested and the consumer to be protected."
A pretty damning review of the current state of the Ethereum platform, by one of the co-founders of StellarX.
In the post he shares results and data from an running an actual test on an app at scale. It's worth a read.
"If you’re building a transactional app, the protocol will not support the behavior your users will expect. I have immense respect for the ambition and the complexity of Ethereum, but I’ve come to see it as blockchain haute couture. Beautiful, intricate, high-concept, high-minded. And not what you wanna wear to work."
- Burning. We're seeing it in the real world, with Eidoo destroying 1% of its supply (and continuing to commit to destroy 50% of their earned fees in the future).
- Governance. Tough times at Dash as the community published a proposal to demote its current CEO for mismanagement (it's not looking like it will pass). Burn rate at $500k/month and at current prices they may soon run out of cash. A hard lesson in treasury management.
- ETHUSD. Research on ETH's price saying that the current sell-off is mostly sentiment driven and due to weaker ETH demand, rather than sell pressure from ICOs.
- A 19 year old was caught having stolen million by swapping SIM cards and then upgrading to a 2018 McLaren paying partly in Bitcoin and partly by trading-in a 2012 Audi R8. Bitpay and Bittrex contributed to getting the guy caught.
- The Virtual Commodity Association is born. Bitstamp, BitFlyer USA and Bittrex join Gemini in an effort to self-police the exchange world (it seems to exclude some of the largest players though).
- New lawsuit, this time against Unikrn, a Mark Cuban-backed crypto coin.
- Bitmain's troubles. After Softbank, now DST is denying its involvement in the pre-IPO round, and Tencent's one is also coming into question. Plus mounting worries about the piles of illiquid BCH on its balance sheet.
- ETH give-aways. Not sure if it's real or just a click-bait, but here the author claims to have interviewed one of the scammers behind the Twitter ETH give-aways. Pretty eye opening, and revolting..
- MakerDAO. Cool visualization of CDP liquidations during the market drop in August.
- Smith + Crown. They have released their Q2 report.
- Traction. Brave browser just crossed 10M downloads on Google Play. It had crossed 5M at the end of May. 🚀
- PoW electricity consumption. Tim Swanson estimates electricity consumption for mining Bitcoin, Bitcoin Cash, Ethereum, Litecoin, and Monero using publicly available numbers.
Not a new fund, but certainly a new venture model in the making.
We talked about the redefined role of investment funds in the Blockchain space in issue #60 and its fascinating to see how fast investors are adapting to the unique characteristics of the underlying asset class, where capital itself no longer grants any privilege. The commoditization of capital was already well underway in traditional venture, but with crypto it's been taken to the extreme.
"investors will likely have to adapt to a new reality that’s focused as much on building and participating as investing. [...] we believe that for crypto investors that are purely financial in nature, getting access and insight into the best projects will become harder over time."
From Notation's post it's clear that outsized returns will accrue to those investors that contribute work to the networks. For example they have been able to mine Livepeer tokens at a cost lower than the price paid by any private investor (including them) and to earn a 2% daily IRR just from increasing their holdings.
That doesn't come for free though, as Notation openly shares: investors will have to gear up with software, hardware and top notch security practices, skills that are not part of traditional VC toolset. On the other hand, ability to market effectively may turn out to be an advantage for 'brand' VCs in DPoS networks.
I think what we'll start to see emerging are partnerships between new, dedicated tech savvy investors/builders providing the mining infrastructure and skillset and brand VCs providing the capital and brand name.
M&A, billion dollar venture fund, now an incubator taking up to 10 companies through a 10-week programme and funding them to the tune of $500k for 10% of the equity (terms that would make all accelerators/incubators worldwide look like pirates).
The founders of Cobinhood, who raised $13M via ICO in October last year, seem to be already onto something else, having raised $20M from IDG Capital for a new highly scalable ‘blocklattice’ protocol called DEXON.
We haven't dug into it yet, but the article contains lots of big promises and buzzwords.