There is no better place to learn game theory than crypto. In order to learn anything, you need to be committed. Nothing shows more commitment than putting your own money on the line. Remember Olympus DAO and (3,3) meme? At its peak, everyone on Crypto Twitter had one variation of it in their profile. In fact, here is an article dedicated to the meme. Olympus DAO collapsed, yet its spirit lives on. It is not the first and won’t be the last.
2018: FOMO3D
It is hard to not mention FOMO3D when we are writing about SocialFi in 2023. For any late comers to the crypto space, the following is a description from Reddit.
“Fomo3D is a lottery game in which the last person to buy a key at the end of a round wins the pot! During a round, people can purchase 1 or more keys which resets the timer marking them as the current leader. With each key purchase during the round, the key price increases slightly. When the timer reaches zero, last person to buy a key wins!” – Reddit
The trick of this game is that the moment someone else buys after you, your payment gets added to the pot. In order to win it back, you need to buy another key. Therefore, for a possibility to win, you need to constantly re-bid. It ended with a player winning $3 million worth of ETH or 50% of the pot at the time. The winner managed to jam the Ethereum blockchain long enough to block everyone from purchasing a key so that he/she could be the last buyer when the timer ran out. The following is a Twitter thread detailing how the winner managed to jam the chain at a low gas fee in order to win the pot. It is incredibly fascinating even reading it five years later.
War Of Attrition in Game Theory
FOMO3D is a perfect example of a war of attrition game. In essence, a war of attrition game is a game that has no winners (unless you cheat of course as the FOMO3D winner). The best strategy is to stay out of it. But once you join the game, your next best strategy is to leave the game as soon as you can. But “cut loss” is against human nature. Greed and the pain associated with losing will keep the players in the game. This game is an ultimate exploitation of human weakness. HBS professor Max Bazerman once ran a famous experiment in his negotiation class. In that class, he started off auctioning a $20 dollar bill with a starting price of $1. The caveat of the auction is that the second highest bidder needs to pay too when the game ends and the winner is announced. It might seem like a no brainer to bit $1 for a $20 dollar bill. But things get interesting when the price keeps going up. Let’s say the person before you bid $20 for $20, will you outbid? The cost of not bidding is $19. Remember the second highest bidder also needs to pay. So if you continue to bid $21 for $20, just might be you will get $20 and losing just $1. It sounds insane, I know. But documented cases show people bidding 100x at a $20 dollar bill. Read more here.
2023: Friend.Tech
The dark crypto winter was met with a beacon of light in August this year. A smart contract called “friend.tech” was launched with absolute bones. In fact, here is one of my tweets making fun of it at its launch.
Buying and selling people onchain definitely sounds like an audacious concept that fits the degen culture well. The backing of Paradigm added fuel to the fire. In no time, frend.tech is racking up more trading fees on a daily basis than Uniswap. The social hook here is that it brings fans and their idols ever closer. Imagine owning shares of your favorite influencer on Twitter and having a direct dialogue with them using the space function on the app. Exclusive content is shared with keyholders only via the chatrooms on friend.tech.
There is only one issue with this game. No one can sell. The number of holders for top 10 subjects is in the range of 100 – 200. This shows an extreme concentration of key holdings. When one key holder sells, it is going to have a noticeable price impact and it either results in 1) the subject him/herself buying back the keys to pump up the price or 2) starting a bank run and everyone sells. You are each other’s exit liquidity.
The only way for this game to ends well is for the subject to buyout all his/her key holders. Otherwise, it is just another platform for the pump and dump schemes. This bears alarmingly similarity to FOMO3D where every player loses in the end.
And statistics show that people are losing interest in the app already. Since mid-October, the app has experienced net outflow. One month in crypto equals one year in the real world after all. But what is for sure is that we will continue to see new “war of attrition wrappers” come up. Have fun while it lasts, but don’t get burned!
