DATALAC & Attention Economy

Warren Buffett straightforwardly shared his views on Bitcoin and cryptocurrency in general at the 2022 annual meeting of Berkshire Hathaway as follows: “If everyone in this room owned all the farmland in the United States and wanted to sell me 1% of it at a negotiated price of $25 billion, I wouldn’t hesitate to buy it. Similarly, I would agree if you owned all the apartments in the United States and sold me 1% at the same price of $25 billion. However, if you held all the bitcoins and wanted to sell them all for just $25, I would definitely not buy. What can I do with that pile of coins? Eventually, I would have to find a way to sell it back to you, either in this way or another. Apartments can be rented out, farmland can produce food. If I owned all the bitcoins, the creator, whether existing or not (referring to Satoshi Nakamoto, the father of bitcoin) 15 years ago, would generate many mysterious stories or conspiracy theories around it. When avoiding the crypto domain, many people always ask me why I don’t buy some bitcoin or invest in something like Buffett Coin. It is necessary to understand the difference between productive assets and things that depend on expecting others to pay you more. If you observe the entire market, you will see a lot of commissions have been awarded. There are many frictional costs that people have to pay to those who are playing this game. Imagine a room with many people coming in and out, specifically a crowd consisting of coin holders and newcomers, money is exchanged — there are many frauds and related costs, and you will lose a lot if you get involved. Specific things of value must create something tangible — think about the value of a great painting (hundreds of years old — you buy it for the pleasure of it) or someone selling you a ticket to visit the pyramids (Egypt), which have existed for thousands of years (you buy it out of curiosity to learn about history, for example). Clearly, assets of value must deliver something to someone. There is only one type of currency accepted (Buffett holds a dollar bill), which I’m holding. You can come up with crazy things like Berkshire Money, but you will certainly run into many problems if you call it money. The US government will not sit idly by for anything that replaces the dollar, like Berkshire Money replacing the dollar. What happens in the next year or ten years is hard to predict, everyone believes there is some magic with Bitcoin. However, from ancient times until now, people have always attached magic to many ordinary things.

Buffett’s perspective somewhat reflects his core principle: “Do not invest in what you do not understand.” I do not completely agree with his view on Bitcoin. However, Buffett accurately reflected the current “wild” crypto market — a room where people come and go constantly to buy and sell for short-term gains. There are many promotion campaigns, tricks, many rewards (airdrops) falling from the sky, many KOLs (or teachers) attracting communities of small traders — to draw a very scarce resource in cyberspace — attention. In the book “Rules of the Net” (published in 1996), Thomas Mandel and Gerard Van der Leun mentioned: “Attention is the currency of cyberspace.” Once accessing the internet, users begin to exchange attention with platforms or others through chatting, debating, advising, or learning something — a place for people to express their desires.

Cobie, in the excellent article below, delves deeper into the attention-grabbing strategy of some famous crypto projects after Bitcoin and Ethereum such as Doge (boosted by Elon Musk), $SOS, Loop, Cyberpunks (NFT punk), BAYC (NFT monkey), ADA (Cardano — once seen as a potential replacement for ETH). The article warns against the habit of following trends and succumbing to the emotional frenzy of small investors. These are people who cannot evaluate the fundamental or technical aspects of a project themselves and rely entirely on social signals, in other words, online influencers.

There has been a lot of discussion about scarcity in the crypto world. Specifically, creating scarcity in the digital world through NFTs (Non-Fungible Tokens, meaning tokens with unique and non-replaceable properties) or ideas like “there are 55 million millionaires out there but only 21 million bitcoins.” A statement by Nayib Nukele, the president of El Salvador, a strong supporter of Bitcoin.

In reality, there is only one scarce resource in the crypto world: attention.

Capital used for risk-taking is certainly not scarce. Those who entered the crypto world in the summer of 2021 called for billions of dollars in funding to explore the so-called “metaverse” and aim for the decentralization of Uber. One billion dollars doesn’t seem like a lot of money anymore.

Crypto assets are not really that scarce either. Of course, this is a statement that is somewhat untrue (if you have knowledge about crypto). Bitcoin and Ethereum themselves are quite scarce due to limited supply and deflationary tokenomic systems designed to combat inflation. Crypto Punks are also scarce due to fixed and limited supply; yes, there are only 5200 Crypto Dickbutts (which you can buy on the OpenSea exchange). However, the number of things we can speculate on in the crypto world is rapidly increasing and theoretically endless.

Specifically, billions of “infinite” dollars are in risk-seeking capital not only aimed at buying traditional crypto bags from OGs, but also many new and fresh tokens. OGs (Original Gangsters) are traders and investors in the crypto market who survived the tense bear market of 2013 and 2014. These are people who have overcome the frenzy of buying and selling by the masses, eventually gaining a large piece of the pie and remaining mysterious.

The influx of new dollars into the crypto market has been diluted, especially in the “bull” (growth) stage, specifically targeting places with high excitement (thrill-stages) when long-term values ​​are beyond the perception of money managers, as if they suddenly discover themselves as short-term investment geniuses in this new market.

Yes, there are only 10,000 Crypto Punks, but there are also 10,000 BAYC, MAYC, kennel one (crypto projects), a bunch of cute ArtBlocks, Cool Cats, Meebits, and Hashmasks — you get the point. Of course, Ethereum also launched EIP1559, a proposal to completely change the way Ethereum fees are calculated, along with reducing the supply of Ethereum on the market. Ethereum also burned billions of dollars worth of ETH, causing scarcity to increase over time. However, for those who feel they have missed the boat with ETH, there are other tokens such as AVAX, SOL, LUNA, ONE, NEAR, and even ADA.

Over time, truly valuable crypto assets demonstrate their unique rarity. Crypto assets that surpass Bitcoin in a bull/bear cycle are very limited, and the vast majority will die completely. It is not unrealistic to imagine that similar things will happen repeatedly in the medium term (3 to 10 years). However, when the exultation disappears, we become more down-to-earth and return to our true nature. At the end of an exciting chapter, those who participated may reflect on hasty and unfounded decisions, a profound acceptance of reality, and a sense of humble regret. Capital gradually returns to its true value. It seems that the pool of value is smaller than what retail investors imagined, unlike when they were in a frenzy about money.

There is a new fund worth over $1 billion founded by a former “creative” personnel at Citibank (wagmi-punk-2383) to invest in crypto. This demonstrates the allure of pouring money into the “toilet bowl” of constantly expanding and diluting crypto investment opportunities. They have limited partners (LP) ready to invest alongside 100 founders who are building scholarships for game-playing (like sponsoring characters or objects that need to be purchased to participate) in the metaverse world with decentralized finance (Defi) and cross-chain solutions (cross-chain: a solution that helps transfer digital assets from one blockchain to another to optimize the linkage between blockchains).

Specifically, the $1.5 billion Hivemind Capital Partners fund specializes in investing in crypto companies, digital assets, and focusing on play-to-earn strategies in the gaming industry. This fund was created by Matt Zhang, who previously led the structured products trading department and created the Sprint investment team at Citibank. At launch, Hivemind chose Algorand, a layer-1 blockchain platform, as a strategic partner to share technology capabilities and network ecosystem infrastructure.

The only thing truly scarce in this space is attention.

Attention

Attention is the currency in the modern web world. Web2 companies discovered this many years ago. Users pay for services by paying attention to a certain message or content. Companies try to attract attention in order to sell to users at a certain time. Usually, companies do not sell directly to customers but act as brokers between the user’s attention and businesses that have something to sell.

Attention as a form of currency becomes even more clear and direct in the token economy. Over 50 IDOs (Initial DEX Offerings — first coin offerings on DEX exchanges — decentralized exchanges) take place every day, all competing with each other to win your dollars and attract you to join their community. A series of airdrops (free token drops, like “falling from the sky”) have been ongoing for the past 12 months, rewarding users with financial incentives for using or supporting their products.

Traditional companies often pay $5–10 for you to use their product. For example: “Sign up and get $10 off your first Uber ride.” In web3, the battle for attention is so intense that offering incentive programs with nine-figure amounts of money has become a new norm, and giving users a five-figure airdrop is nothing new. Influential people in the crypto community on YouTube even demand advertising fees ranging from five to six figures. Attention becomes scarce and always in high demand.

Asset valuation based on attention

In previous articles, I have mentioned how the crypto market operates like a video game rather than an investment due to the bull-run growth pattern. If crypto is a massive multiplayer game where scores are represented as tokens, then attention decides the majority of these short-term games.

Most players in this game cannot evaluate the fundamental or technical aspects of a project on their own. Instead, most retail investors rely entirely on signals or social proof from the community in the decision-making process. If we simplify the crypto price through a supply/seller and demand/buyer formula that changes over time, then we can imagine the impact of attention scarcity.

Clearly, prices rise when demand increases or there are fewer sellers. However, the underlying factors that affect supply and demand do not change as fast as the cadence of the public’s participation in this video game-like bull market. Moreover, developing protocols and creating value often takes several years, while crypto traders/gamers in the bull market often only operate within a weekly timeframe, sometimes even shorter.

Attention is the only factor that affects the supply and demand variables, which change based on the public’s participation. These variables are affected and controlled by the participants or players.

Become favored

During the bull market phase, skilled players don’t try to buy the best assets. Instead, they try to buy assets that have already passed the attention chasm and recognize their true potential. The investment landscape in the crypto market is represented by the matrix below:

Good traders know they want to buy “winners” to maximize returns. They want to buy projects that will move from “niche” to “winner.” They may also want to buy projects with the potential to move from “rekl” to “Retail Trap,” although they recognize the high risk of this investment as bad projects may not become popular. Projects can also move from “Rekl” to “Niche” with changes in product strategy, technology, or leadership. Traders understand that projects with the potential to move up and to the left on the matrix are opportunities to invest in.”

The “Winners” area is the best asset for long-term and casual investors and is also easy to recognize (as it is already famous). However, most crypto gamers will have difficulty finding these great opportunities (at low prices), and experience may only help them find projects at the market average, while good traders will look higher, above the market average. A clear successful example is Ethereum. Of course, the “Winners” group also has downside risks, such as moving to the “niche” or even “disaster” area gradually over time as the crypto context changes.

The “Retail Trap” seems to have fewer investment opportunities compared to market average projects, but it has more risks than the “Winners” group because these projects have poor technology, weak development teams, and unclear long-term vision. This group may become good projects, but it rarely happens and takes a very long time. The most optimistic scenario is that this group can develop close to the market average. The worst scenario is that this group will shift from the “Retail Trap” to “Disaster” when the market realizes that this is a bad project and loses the “attention” it previously received (popularity).

When projects gain popularity and are accepted by many people, traders will pay attention. The “being favored” phase is when asset valuations often change.

When the project is favored, the number of people joining the market to hold this asset increases to saturation. When saturation is reached, it requires (a) the entire crypto market to rise so that the asset can also rise or (b) the fundamentals behind the asset must be improved compared to the market correlation. That is why holding “Winners” (or “Retail Trap”) during the boom phase is less attractive to most long-time participants in the crypto game, as (a) and (b) move too slowly in the eyes of crypto video game addicts. Great opportunities in the crypto market always come with huge opportunity costs.

Skilled crypto players always try to find projects that are priced lower than their potential value, and then sell good projects when they reach an appropriate price point. This group sits in the “Win” box while looking for better deals. Long-term investors don’t care much about this short-term game. They are happy to buy in the “Win” box and bet on projects that develop above average and become more important over time.

$SOS, Loot, BAYC

There are many examples of intentionally creating sudden market attention.

The recent airdrop of $SOS is worth considering. $SOS was airdropped by a third party to Opensea users based on their previous NFT purchase history. Interestingly, giving crypto gamers free money is the fastest way to attract attention in this community. $SOS is an airdrop from OpenDAO, distributed to those who have transacted on OpenSea. The token price has risen by 1000% in just two days. This project has no connection to OpenSea, but a total of 200,000 wallets have registered to receive $SOS tokens, with a total contract market cap of over $200 million.

It is important to note that during this phase, $SOS still has no product, no underlying platform foundation, and is simply a market of speculative attention covered by a crowd on OpenSea hoping to get tokens or compete with each other.

When crypto gamers pay attention to $SOS, they have three main choices:

Sell the tokens received for Ethereum or USD Hold onto the tokens received and observe what happens next Buy more $SOS from sellers (who received tokens for themselves) When attention is focused on this new market, crypto gamers will ask themselves “how to make money from this novelty” — clearly the ultimate goal of playing crypto video games. If enough people choose options (2) and (3), because $ from (3) is greater than (1), the price of $SOS will rise and the chart of $SOS looks very good.

If the chart looks good, many people will continue to discuss $SOS, then introduce this opportunity to more people — creating a new group of people interested in the project. Next, those who are not yet using OpenSea or not using it enough to get a good airdrop will make the following decisions:

1. Buy $SOS and participate
2. Wait or completely ignore this market

Some people will choose option (1), helping the price to rise higher. When the price goes up, people make money, so they will continue to talk about this trendy new thing. Project owners realize they are getting more attention, and the project moves from a niche/rekt popularity level to a winners/retail trap level.

With higher prices, many people decide to happily sell off their airdrop portion. The charts then slow down, and attention decreases, and the number of people deciding to buy $SOS decreases. $SOS becomes no longer new and shiny, just a token with no specific product, less talked about, and the “k” (growth factor) of the asset decreases. Attention in the early stages is no longer sustainable, and the majority of remaining interest comes mainly from those still holding the token.

Once an asset has entered the awareness of many players, getting them to think again about this asset is much easier, but to get sustainable attention without a real product and users is much harder.

Next is the Loot project, an NFT project that created 8,000 unique bags containing RPG-style items. The project was launched by Dom Hofmann, co-founder of the social networking platform VINE. Each “Loot bag” includes 8 types of items in the travel equipment set, ensuring that adventurers have everything they need for the journey: gloves, armor, rings, weapons… These NFTs are distributed for free to users, they only have to pay a gas fee to mint. Bags from 1 to 7777 are for the public, while bags 7778 to 8000 are for the project’s founding team. There are no games, rules, or official systems related to Loot Bags. These NFTs are created as items that can be used in games or projects made by the community. This has created a generation of communities, development tools, player guilds, market trackers, and new derivative projects using Loot Bags in their world. The creative freedom of Loot has garnered significant attention.

Clearly, Loot also somewhat follows the basic steps outlined in the blueprint above. The attention-grabbing strategy also partly explains why the NFT PFP (Picture for Profile) profile picture NFT project — Bored Ape Yacht Club (BAYC) — remains the most successful in the year and can still be “flipped” on the Punks floor while other competitors launched at the same time have fallen to zero. Bored Ape Yacht Club (BAYC) is a collection of 10,000 unique NFT monkeys, each with completely unique features. Some monkeys have rarer features than others and are usually hunted. Anyone who owns a BAYC NFT will have exclusive access to BAYC’s new collections in the future and other exclusive privileges. Similarly, the world’s first NFT project, CryptoPunks, with 10,000 non-duplicated small 8-bit images (which spurred the development of ERC-721 token standards for future digital collections), these punks are now extremely valuable. BAYC is highly focused on community building, so the BAYC network becomes tightly knit, and they are continuously promoting the project, helping to increase sustainable attention to BAYC.

Doge

Doge is another fascinating example of grabbing attention in 2021.

Throughout its history, Doge has often surged along with Bitcoin. However, from its formation until the end of 2020, these surges were limited in range. Doge’s price chart shows that from 2014 until the end of 2020, the chart maintained a zig-zag shape for seven years.

When people learn about Dogecoin, they have two choices: buy Doge or ignore it. You can imagine that in the past 7 years, the “decision to invest in Doge” ratio has remained unchanged. It can be said that out of 100 people, 90 ignore Doge and only 10 buy it. However, in 2021, there was a sudden surge in attention due to Elon Musk becoming a passionate supporter of Dogecoin.

This led to two things:

1. More people in the crypto community were convinced to buy Doge.
2. Many new people entered the market for the first time, convinced to buy crypto, starting with Doge.

Therefore, Elon’s endorsement of Doge is very interesting in the market. You can ask yourself, if Elon continues to attract attention to this, what is the maximum number of viewers that can be reached? How will the buy/ignore ratio be affected?

These thoughts make it easier to bet on Doge. If Elon continues to promote Doge, the increased attention will lead to a huge change in supply and demand, which will help those who hold Doge. It is estimated that the increase could be 5x or 10x. If Elon doesn’t do this, then it may be wise to cut losses at a 33% negative return on investment. This is a reasonable balance of risk and reward.

Finally, it seems that almost everyone who has made the decision to buy Doge around the world is aware of Elon’s joke on SNL. At that point, interest in Doge fluctuated, and there was a saturation of people who knew about Doge, and those who had made the decision to buy had already done so. Current attention is focused on those who are still undecided (whether to buy Doge) and those who already hold the most Doge. The “attention” ratio has dropped, causing a decrease in the number of people who want to buy it, and it is now only being focused on or paid attention to by those who hold a bag of Doge (bagholders).

Smart traders are starting to sell their holdings, and the value is following the level of attention that the token receives.

ADA

Cardano is another interesting example. This token has operated very differently from Avalanche, Solana, and Luna in 2021, although the core theory behind each of these assets is the same. Cardano has attracted a lot of attention when the bull market began. It became a favorite coin of the Crypto community on YouTube, and many famous faces have placed this coin on their list of Top 3 assets to hold. Of course, the founder of this coin is also a Crypto YouTuber, and each stream by Charles Hoskinson (one of the co-founders of Ethereum) usually has around 50k viewers. However, at the beginning of 2021, the value of Cardano dropped 93% compared to SOL (Solana’s token). We can explain this phenomenon in the same way as what happened with $SOS or BAYC mentioned above.

When projects are pumped up to create a lot of attention beyond the current ownership group, the price will soar. In late 2020 and early 2021, Cardano was the leading project in generating attention to retail investors through the “eth killer” message. Furthermore, the bull market was gaining momentum, attracting many new entrants and driving even more attention.

However, throughout 2021, L1 (Level 1 — initial blockchain like Bitcoin and Ethereum) projects such as Avalanche and Solana have created a tightly knit and dynamic ecosystem, similar to what BAYC has done. They have constantly attracted the attention of users, developers, as well as speculators and sparked discussions about the product. A series of new projects and quick money-making opportunities have been launched on L1 platforms. These communities have enthusiastically promoted new tokens. No one in crypto wants to be left behind, a positive feedback loop flowing into DeFi/games/or any other form of crypto — sustained attention. Because attention is so scarce, all L1 projects must compete with each other to enter customers’ minds at the same time. Solana and Avalanche’s gains in this battle mean losses for other L1 projects.

Cardano is highly regarded, however, because users did not interact enough during that stage and there was no ecosystem of crypto players operating regularly from day to day, Cardano (ADA) seems to have fallen into the “Retail Trap” rather than the “Winner” category.

Conclusion

Attention is the only scarce resource in the crypto world.

The speed of changing attention and saturation of ownership are useful metrics to observe and estimate the value of crypto assets or play crypto trading games with many others (like video games).

The best traders specialize in hunting for assets with a certain level of popularity that are still undervalued and have a lot of growth potential — if they can overcome the dull pit to become famous. They will sell if ownership catches up with attention.

Holding “Winner” tokens during the growth phase is only for those who are capable of maintaining a stable mindset, individuals with super balanced lives. Perhaps I am also just one of them on some day (most still feel emotional).

Oh, don’t listen to crypto gurus on YouTube. They are turning your attention into a product for their advertising business activities.

In definition:
The attention economy is an economic model in which the value of products and services is measured by their ability to attract the attention of consumers and keep it for as long as possible. In this model, businesses compete for the attention of customers and pay for advertising and marketing to attract users to their products or services.

With the development of technology and social media, gaining attention has become an important factor for many businesses and individuals. Businesses want to attract the attention of customers to increase sales, while individuals want to attract attention to increase their social media following or become a famous personality.

However, focusing too much on gaining attention can lead to neglecting other values such as product quality or user experience. In addition, competition to attract attention can also lead to creating fake content or information to attract the attention of users.

By Quan Nguyen Ha.