Fresh off the press:

▹ Week's Top Signal
▹ The Ethereum Merge Week
▹ Fundamental Labs on Web3 Social
▹ Andrew Hong on Web3 Scores & Algorithms
▹ White House Crypto Mining Report
▹ Vitalik Buterin on ENS Fees
▹ ... much more
 
Plus: Market Pill, What else is Poppin'

Let’s get into it.

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This week, Paradigm announced GOO: a mechanism to disincentivize the divergence between NFT and liquid token value in NFT communities that have launched ERC-20s, and to repair it when it happens anyway.

The paper centers around an example from Art Gobblers, an upcoming NFT project from the firm. Art Gobblers are NFTs that produce a token called Goo. The more Goo a Gobbler has, the faster it generates more Goo. This means the total Goo supply will increase faster and faster every day, going from thousands to millions and beyond.

It’s important to highlight the game theory here: hoarding Goo tokens without owning any Gobbler NFTs is a bad strategy, since everyone else will be generating Goo and your share of the total supply will rapidly decrease. On the other hand, if you own many Gobblers but little Goo, your Goo production will lag compared to other players.

This mechanism works very well for NFT communities that then launch an ERC-20, but less so for ERC-20 communities that want to launch an NFT. Reason being, the base token sets the culture and social incentives around which tokens are more desirable, and many ERC-20 communities who have launched NFTs do not consider the NFT core to the ecosystem.

NFT collections are now experimenting with ongoing programmatic mints (e.g. Nouns) rather than minting 10k or more NFTs all at once. This allows for more efficient value capture as the brand grows in value, and also makes mechanisms like GOO all the more important.


TAKE NOTE
It’s clear that a dual-token model for NFTs and ERC-20s will become more popular over time, and mechanisms like this one help to offer solid tokenomics options without leaving communities desperate to figure out what best practices exist.

The Ethereum Merge Week — Towards a Greener System. The Merge is fast approaching. According to Google’s Merge countdown tool, proof of stake will come to Ethereum mainnet some time Wednesday evening on the US east coast. When the assigned TTD number is reached, the network will merge its Execution layer with the new "Proof of Stake" consensus layer, allowing the chain to continue on with this new system for issuing and authenticating blocks. Among many other benefits, this will mark the end of Ethereum’s extreme energy usage, bringing total energy consumption by the blockchain down to almost 1% of its current levels. The next steps on Ethereum's roadmap involve improving fees, transaction speeds, and overall scalability and modularity via sharding and rollups. This is a long time coming – congrats to all of the core developers and ecosystem leaders who worked for years to make this happen!

Web3 Social: A booming space with an identity crisis. The term “web3 social” has been thrown around to refer to a lot of things: decentralized traditional social media (Farcaster, Lens, etc.), NFT minting and marketplace platforms (Zora, Showtime, etc.), and even tokenized communities like Forefront. The team at Fundamental Labs argues that the biggest challenge in the web3 social space today is address-based identity. Lack of individual-based identity fails to show anything more than the assets that addresses hold, rather than relational status, the social status that a person acquires through relationships with other people. Regardless of what we mean by web3 social, relational status will obviously be critical: “social” implies interactions with others, not simply existing alongside others who hold similar assets. These interactions, especially ones that are unique to on-chain experiences, will create fundamentally different social apps for users.

Most NFT Projects Convey Ownership of, and Valuable IP Rights in, Digital Art. Lawyer Jeremy Goldman wrote this essay to set the record straight: NFT buyers do “own” the digital art associated with their tokens. Additionally, NFT buyers frequently receive valuable IP rights in their digital art, including through broad exclusive licenses, which provide “all of the protection and remedies accorded to the copyright owner.” This is an important point to make, as it is often argued that NFT holders simply own a license to the art, not the art (or NFT) itself. Goldman argues that this is simply not true, and has the case law to prove it. NFTs offer us a brand new form of ownership that is both influenced by traditional legal precedent and creates entirely new cases and precedent – but the existence of the new does not negate the old. This is an insightful, concise piece on NFT law.

The Landscape of Web3 Scores and Algorithms. Andrew Hong comes with another incredible piece on web3 scores and how they should be developed, categorized, and used across the ecosystem. Currently, he says, web3 algorithms focus on calculating scores targeting different facets of a user’s profile, aggregating activity across multiple chains/apps. Protocol teams and communities can then decide how to use those scores to enhance their product experience, governance processes, or tokenomics. The key is that a plurality of scores exist. Andrew lays out a landscape of scores based on their generalizability and relativity. He then breaks down how they can be developed step by step, highlighting some best practices along the way. This topic is particularly interesting given conversation around the openness and composability of web3 data. Those particular benefits of the blockchain are only valuable if we actively decide to take advantage of them, and this is one way to do so.

Should there be demand-based recurring fees on ENS domains? Vitalik recently wrote an essay asking whether ENS’s currently (cheap) fee structure is optimal for the DAO, and the ecosystem at large. He argues that ENS is certainly generating less revenue than they could, and the system is probably unfair as it favors early adopters who can hold inactive domains because fees are so cheap. He proposes a few alternative solutions, including demand-based pricing for ENS domains. Nick Johnson of ENS quickly responded with a few additional considerations, including the types of names (i.e. “human names” vs. “brand names”), negative externalities of weaker property rights, and the possibility of harberger registries for shorter domain names. The fact that Vitalik made his opinions on the ENS system clear is a testament to its importance throughout the ecosystem. That said, this debate can be abstracted out to a much larger one concerning ethical property rights on blockchains and beyond.

Closing the gap between Retroactive Sybil defense and Gitcoin passport. Gitcoin Grants currently uses two different mechanisms of Sybil resistance. The first is the Gitcoin Passport, where your match is multiplied based on how many pieces of evidence of personhood you link to your account. The second is Sybil Account Detection, where accounts that are evidenced as non-human are removed from the Grants Round. This piece outlines the power and limitations of both systems, and advocates for independent, composable Sybil resistance that can be customized by the community seeking grants funding and the identity protocols that their members use. While building the largest public goods funding initiatives in the space, Gitcoin is simultaneously building some of the most important Sybil resistance tools as well, which will be a massive step forward for everyone in the ecosystem.

Crypto Mining Is Threatening US Climate Efforts, White House Warns. The results of a White House report commissioned in March of this year were released this week. In it, the administration argued that the environmental impact of blockchains like Bitcoin could impede US efforts to combat climate change. The report recommends that the crypto industry should collaborate with environmental and energy regulators to develop clean standards. If that fails, the report says the Biden administration should consider executive action to force blockchains to shape up. It seems like the Ethereum merge, then, is coming just in time, as energy usage will be cut dramatically on the blockchain. That said, proof of work blockchains like Bitcoin aren’t going anywhere anytime soon, and arguably never will. Exploring new ways to combat energy usage while maintaining the security and sustainability of these technologies will be critical to the development of the industry in the face of regulatory scrutiny.

Market data on the last 7 days. Last updated Sept 14, 2022

Updates from the DAO

— We made some updates to Terminal.co – make sure to check it out and continue to send over feedback.
— We will have a Season 2 recap post coming out this week, alongside some special announcements for community members.
— Forefront went to MCON – shout out to Metacartel for organizing such a special event!

▹ FF Library - Crypto-macroeconomics
▹ Read - On Tornado Cash
▹ Mainstream - Digi-Yuan vs S Dollar
▹ Regulation - Base Layer Neutrality
▹ Report - Metaverse, NFT, Web3
▹ Update - Gitcoin Round 15
▹ Listen - FF Podcast Roundup
▹ Watch - Entrepreneurship in Web3
▹ Interesting - Coop Records
▹ Cool - Re:Meme by Newt
▹ Resources  - Everything on Merge
▹ Thread - Web3 Experience Layer
▹ Tooling - Collectives by Syndicate
▹ Techy - On-Chain Trusted Setup Ceremony

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