Community NFTs need a new model

After a couple of years of explosive growth and stunning success stories, the NFT scene has hit a lot of turbulence. Of late, there have been some shocking tales about investors who have paid big sums for NFTs and then watched in horror as the value collapsed to zero.

The problems that the NFT space is encountering are similar to those of the crypto sector. Specifically, success stories such as BAYC led to the rapid founding of countless new NFT communities and projects. Some of these, set up in haste, were not backed by a sustainable liquidity model. Others were simply rug pulls.

Aside from the tragedy of the financial losses suffered by ordinary people who put their trust in NFTs, these sorts of failures and scams have the potential to cause irreparable long-term damage to the sector. One recent survey has shown that public perceptions of whether NFTs are a good investment are now declining. Given that only a small proportion of the public currently holds NFTs, this is a bad sign for the sector’s growth prospects.

NFTs will only be able to thrive in the long term if people trust the communities that issue and trade them. This means that future NFT projects need technical and financial architecture that protect the NFTs against collapses in value.

There are signs that a new generation of community NFT projects is being built according to this principle. One of these is PandaDAO’s Random Panda Club (RPC) NFTs. The wider Pandaverse, with an emphasis on building rich NFT-grounded creative intellectual property, has an array of products and services on their development road map.

Code is law: The founding principle for new community NFT projects?

What makes RPC NFTs so different is the code that PandaDAO is implementing for the launch and future trading of the collection. The PandaDAO team fully buys into the philosophy that “code is law,” and they have leveraged it to create a swap protocol, ERC721P, that will protect users’ investments and community liquidity by giving the NFTs an intrinsic value.

Swaps and rebirths to create fairness and protect value

You can read more about the technical dimensions of the project here and here. The project protocol’s two features that are most likely to attract NFT collectors’ attention are contracts called Swap and Reborn.

The Swap contract is all about fairness. Under the protocol, each RPC NFT minted will be anchored to 50,000 $PANDA. Anyone who holds an NFT can exchange it for 50,000 $PANDA on the community’s decentralized exchange. Conversely, anyone holding 50,000 $PANDA can exchange it for one RPC NFT. The protocol ensures that the NFTs users are issued during swap transactions are completely random – and it has been designed to stop bad actors from gaining unfair access to the rarest NFTs during the minting process.

The PandaDAO community will offer a fixed-price repurchase of $PANDA tokens at a rate of $0.005 per $PANDA. This means that each RPC NFT will always hold a value of at least $250. What’s clever about the system is that it guarantees the value of the NFTs yet at the same time creates plenty of scope for arbitrage between the community’s decentralized exchange and sites such as OpenSea, therefore encouraging appreciation in the market prices of the NFTs.

The Reborn contract, on the other hand, allows users to do a 1:1 swap of an NFT they hold for another NFT held in the community pool. The code ensures that the selection of the new NFT issued to the user in exchange for the old one is completely random: Users might get a rarer NFT, or they might not. The feature is designed to allow users holding non-rare NFTs or NFTs that they have grown bored of to continue to have a meaningful stake in the community. It also prevents value declines caused by dumping of unwanted NFTs. Interestingly, PandaDAO plans to include NFTs from other projects (BAYC and Doodles, for example) in the pool of NFTs for random 1:1 exchange.

To ensure the project’s liquidity remains sound, Swap and Reborn contracts involve a handling fee of 7.5% of the NFT’s anchor price. Half of that goes toward increasing the anchor price of the NFT, while the other half is allocated to the community treasury.

Are we looking at a blueprint for the future?

These two central features of ERC721P have the potential to solve major issues that have plagued some community NFT projects in the past, notably poor liquidity created by drops in floor price, gaming of the minting system by bad actors, and user frustration and/or dumping caused by having to hold non-rare NFTs or ones that have lost their aesthetic value to the user. It will be interesting to see how the RPC project unfolds over the next couple of years. If ERC721P addresses the issues that have hit some recent NFT projects, we might be looking at a sustainable model for a new generation of community-led NFTs.

To find out more about RPC and PandaDAO, follow them on social media and watch the Pandaverse: Origins video.

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