Level 9: Factory NFTs, & Recourse after Hacks/Scams
Factory NFTs are uniquely positioned for recourse
You make one mistake, and your NFTs are stolen. More than 100M of NFTs were stolen in the last year.For the most part, you lack recourse.
Scams and thefts are bad for most of the stakeholders, since value gets destroyed for both the holder, and the company (less volume / NFTs in circulation).
However, with the Factory NFT model, we are uniquely positioned to design new mechanisms for (limited) recourse.
What is a Factory NFT?
Factory NFTs (Factories) are NFTs which generate other NFTs or tokens (Product NFTs, henceforth Products). Their main value derives from being a stream for that which is desirable.
Factory NFTs are a part of the Free-to-Own model, popularized by Limit Break with its DigiDaigaku collection (the aforementioned Factories).
Believe it or not, these pictures of anime girls are actually Factories that generate assets — the first airdrop was a Spirit, which at (current) peak, was 7 ETH.
Recourse in the Factory NFT Model
Consider: when a Bored Ape is stolen, since the value of the Bored Ape comes (primarily) from its signalling potential as a PFP, direct ownership of the NFT and verifiability of that ownership.
However, because the value of a Factory comes from its downstream ability to create Products, it stands to reason that there’s a different solution that can be implemented by the operating company / team.
Teams can redirect the flow of new ‘Products’ after a verification of a hack/theft.
Since the value of the Factory NFT derives from its outputs (airdrops, and combinatorial value from holding the Factory + NFT [the merging of heroes in Limit Break]), teams can effectively…
Censor the current NFT holder and remove utility of that asset
Redirect new Products to the previous owner of the Factory
This all adds more pressure on the thief by reducing the utility they derive from the Factory.
One challenge of course is to first prevent the censored NFT from being resold.
We witnessed this with Crypto Raiders — there were certain players that were exploiting, and therefore their Raiders got nuked — which involves changing the metadata of the Raider NFT, and creating an exception for the games that would use that Raider NFT (in this case, Crypto Raiders).
Lemons and Stolen Goods
Once the censored NFT has been resold, the buyer has purchased a ‘lemon’, a censored NFT. The question reduces to: who do we send new Products to?
Perhaps the answer to that question is found in the precedent set when one purchases a stolen good. (Google will help you with this.)
Zooming out, this is in practice following a similar principle to the decision-making behind the DAO fork — Layer 0 is people, and the blockchain is merely a way for us to embed our values transparently.
Safety → Lowered Risk → Increased Demand
Part of the reason why retail and institutional clients have less propensity to enter into the space is because of such incidents and situations creating elevated risk levels.
By implementing better avenues for recourse and remediation, we not only help those who have lost their assets, but also create more consumer confidence.
I’m also keen to hear your ideas around defensive / security design — comment below :)
Source: The Guardian
Sure, you can censor on OpenSea, report the addresses on Etherscan, & make a police report / breadcrumb the addresses… but due to the immutable & irreversible nature of blockchain transactions, you can’t force the other party to return it — you can only apply pressure.
We discuss not anchoring users to a mint price in Level 8 — explicitly, ‘give things away for free’ and trust in the long-tail of monetization. Not every project will be able to do this, of course (Level 4: Funding), but this provides an alternative to the business models of play-to-earn and multiple paid mints.