Hashmasks in the Dark Forest, or why DeFi alphas will love farming Name Changing Tokens.

Hashmasks are still keeping me awake at night, here’s why…

The purpose of this article is to briefly explain why Hashmasks will inevitably attract the keenest players in the DeFi world. Having honed their craft in the cut throat world of trading on decentralized exchanges—arbitrage, front running bots, leverage and a whole plethora of secret tricks—these well capitalized whales will find profit in applying their crypto-native mindset and DeFi skillset to trading Hashmasks. Their presence will increase the value of Hashmasks at the same time as it influences how the Hashmasks game is played.

This article is for an intermediate audience that understands the basics of Hashmasks. If you’re just getting started with Hashmasks, please read my introductory article first:

With that background in place, let’s now proceed on a speculative mind journey. I’m going to move quickly and assume that the reader has a relatively sophisticated understanding of Ethereum.

The Tokenomics of Hashmasks: Floor and Ceiling

Okay, let’s begin with the tokenomics of Hashmasks, an NFT on the Ethereum blockchain. There are many different ways to value Hashmasks.

Thus far, the dominant method has been to look at them as individual artworks, judge their rarity and price them differently on the basis of explicit and hidden traits. This is an approach more typical of the art world and collectors who prize uniqueness. Right now, the ceiling price of Hashmasks is roughly $650,000, the highest price paid for a Hashmask.

There is another way to value Hashmasks, however, and that is to look instead at the minimum price of the most “common” Hashmask. This is the floor price and it is determined by the minimum price on OpenSea which should, ideally, be nearly equivalent to the price of $MASK, a token representing a share of the pool of Hashmasks owned by NFTX. Today the floor price is around $1,300.

Coingecko chart of the floor price of Hashmasks (source).

Now what is the proper ratio between the floor and ceiling of an art work? That is a difficult question to answer definitively but let’s try to do so with reference to the artist Pablo Picasso.

Picasso’s least expensive artwork.

Picasso produced around 50,000 artworks in his lifetime. Picasso’s least expensive artwork is worth $45.1 million. His most expensive artwork is $179.3 million. So the ration of ceiling to floor for Pablo Picasso is roughly 1:4, which means that the most expensive artwork he produces is only four times the cost of the least expensive.

This is rather simplified and the truth is more nuanced. As one person put it in the Hashmasks Discord:

“You cited his “50,000” artwork number, i think that number accounts for his paintings (13K of them about) and illustrations (35k about) … the cheapest original Picasso illustration i believe is about $200k… that’s about a ratio of 1:895 between most expensive painting and cheapest illustration.”

So is the ratio between floor illustration and ceiling painting or floor painting and ceiling painting?

Picasso’s most expensive artwork

In any case, let’s compare this to Hashmasks.

Hashmasks produced 16,384 artworks. The least expensive is around $1,300. The most expensive is $650,000. The ration of ceiling to floor for Hashmasks is roughly 1:500, which means that the most expensive Hashmasks is currently 500 times the cost of the least expensive.

The most expensive Hashmask on the left and an example of a floor Hashmask in the NFTX pool on the right.

It is reasonable to assume that this ratio will decrease as the market for Hashmasks matures. The reasonable scenario is that the floor price of Hashmasks will increase at a greater rate than the ceiling price of Hashmasks decreases. This seems likely due to the “diamond hands” of Hashmasks collectors.

There is, however, another reason to assume that the price of the most common Hashmasks will increase and that is due to their capacity to yield Name Changing Tokens.

The Tokenomics of Name Changing Tokens: Prestige and Time

Each Hashmask produces 3,660 Name Changing Tokens per year. This emission will continue for 10 years. So each Hashmask will yield 36,600 Name Changing Tokens in its lifetime.

Each of the roughly 3,500 participants in the initial sale of Hashmasks received an additional 1,830 Name Changing Tokens.

So the maximum number of Name Changing Tokens is:

((36600 * 16384) + (3,500 * 1830)) = 606,059,400

The sole function of Name Changing Tokens is to name, or re-name, Hashmasks. It costs 1,830 NCT to change a name. So the maximum number of name changes in Hashmasks is 325,838 which is an average of 19 name changes per mask.

Names are valuable because they are scarce—every Hashmask must have a unique name—and magical: some names are more powerful and desirable than others.

Adidust.eth, an active participant in the Hashmasks Discord, goes one step further:

“Not a lot of people will name their Hashmasks a suited name hence a Hashmask can occur many name burns thus decreasing the supply of NCT and at the same time limiting the ability to name all the Hashmasks in existence, this will leave us with unnamed Hashmasks that might have a different price structure than the named Hashies.”

And because each Hashmask generates a predictable and steady supply of Name Changing Tokens for the next 10 years, these Name Changing Tokens can be valued in the DeFi economy. It is important to note that Hashmasks are an ERC-721 and Name Changing Tokens are an ERC-20. This means that Name Changing Tokens are easily traded on existing decentralized exchanges, such as Uniswap.

Here we see NCT being traded on Uniswap.

Hashmasks are akin to a clock and Name Changing Tokens are the representation of time.

3,660 NCT = 1 year
36,600 NCT = 10 years, or the total supply of 1 Hashmask

Therefore, at the current price of $.10 per NCT, it costs approximately $3,660 to purchase the lifetime rights of 1 Hashmask’s NCT production. Is the market valuing this correctly?

Savvy Defi people will see an opportunity to arbitrage NCT and MASK against ETH and stablecoins.

Experienced DeFi liquidity providers will see an opportunity to provide liquidity to NCT/eth and MASK/eth pools. They will see a value in building investment DAOs that accumulate Hashmasks in order to harvest NCT and accumulate more Hashmasks. MaskDAO is getting started. If you understand what I’ve written here then you likely see the implications as well. Let’s move on…

The Dark Forest increases the value of Name Changing Tokens

Now, imagine the following scenario. A wealthy investor makes her first Hashmask purchase and intends to give it to her lover for Valetine’s Day. She wants to make the gift extra special so she decides to name the Hashmask a word of great sentimental value to them both: a made up love word only they know. She sends the name change transaction and waits patiently.

But then something terrible happens: the transfer fails because someone else has snatched the name! And worse still, the Hashmask with her special name is a “common mask” and has been put up for sale on OpenSea for an inflated, but still affordable (for her), amount. Should she buy the Hashmask from the name kidnapper to acquire her special name?

Welcome to the perils of Ethereum’s Dark Forest.

For a background on the Dark Forest please read the defining article:

The basic gist is that all transactions on the Ethereum blockchain are visible prior to being mined. If a transaction is valuable then front running bots can, and will, submit the same transaction with a higher gas price, hoping theirs will be processed first. This is common practice in DeFi and there are many Dark Hat entities whose sophisticated bots do this automatically.

Here is an example of a Hashmask owner naming their mask “Teardrop.” Notice they paid only 115 Gwei and their transaction could have been easily frontrun.

Right now there are no bots actively front running naming on Hashmasks. But if there is a profit to be made that will change quickly. If frontrunning bots become common place they’re going to need to acquire lots of common Hashmasks and loads of NCTs.

This will negatively impact the usability of the naming system, although it won’t destroy it entirely. It is more akin to a pervasive ransom attack: acquiring the Hashmask with the kidnapped name will allow the owner to transfer the name to the Hashmask it is intended for in a single transaction that is not front runnable. This will require building specialized smart contracts.

I’m not endorsing front running bots, on the contrary I think they’ll be an overall negative presence. I am simply observing their likely arrival.

Conclusion: DeFi Strategies

Let’s wrap this up with a quick look at the various DeFi strategies that are already possible with Hashmasks:

  • Speculate on the floor price of Hashmasks at NFTX or NFT20
  • Speculate on the value of NCT at Uniswap
  • Farm NCT by owning many common Hashmasks, harvesting and reinvesting in purchasing Hashmasks
  • Provide liquidity to NCT/eth or MASK/eth pools to earn MaskDAO tokens
  • Arbitrage the floor price of Hashmasks on OpenSea vs NFTX vs NFT20

Coming soon:

  • Chainlink price oracles
  • Elastic supply token pegged to Hashmask floor
  • Integration of Hashmasks as collateral on Compound and elsewhere

Those three aren’t currently in development, as far as I know, but I imagine it won’t be long until they are.

That’s all for now. I hope that you found this article helpful for expanding your understanding of Hashmasks. If you read this far then you should really join the Hashmasks Discord.

About the author

Micah White is the co-creator of Occupy Wall Street, the author of The End of Protest and co-founder of Activist School. Learn more at micahmwhite.com

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Thanks for reading!

I change the world by changing protest. Learn more at micahmwhite.com and activistschool.org

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