Idols NFT Secures Ethereum Blockchain with “Virtuous Cycle” Providing Long-Term Gains
There’s a deleted scene from the movie Pulp Fiction where Mia Wallace, Uma Thurman’s character, explains that there are two types of people in the world: Beatles People and Elvis People. A Beatles Person can like Elvis, and vice versa, but nobody likes them both equally.
Maybe it’s like that with DeFi People and NFT People. NFT aficionados go deep into rarity values and uncovering alpha on the next big drops. DeFi People might want to flex with a rare PFP for their Twitter profile, but for them it’s all about making profitable crypto maneuvers with dApps and protocols.
There are a growing number of new Web3 projects arriving on chain that suggest a new age of NFT/DeFi hybrids is on the way. The arrival of innovative new concepts and collaborations that combine the best aspects of decentralized finance and NFTs is sure to unlock amazing possibilities for all of crypto. For example, some platforms now enable NFTs to be used as collateral for loans, offer opportunities to buy tokens representing fractions of blue-chip NFTs, and even facilitate the deposit and exchange of NFTs with NFT liquidity pools.
One recently launched project, the Idols NFT, puts several interesting DeFi twists into its NFT offering. The project is cleverly designed with DeFi economic dynamics that create a self-sustaining flywheel of incentives and rewards with compelling propositions for all types of Web3 investors.
An Idols NFT with some rare traits
The Offering: The Guardians of Ethereum
I’m clearly a DeFi person. I’m fascinated by tokenomics, composability, smart contracts, and financial structures. I get excited when I learn about a new dApp that enables me to do some mind-blowing new thing with crypto that I hadn’t even imagined before. I’ll admit I was mystified by the hype and interest surrounding NFTs. I could never quite get my head around why people were spending serious amounts of real money on digital, pixel-based art. However, after participating in the Idols NFT’s fair-launch, last-price Dutch auction mint — called the Offering — I’m starting to understand the appeal of limited-offering generative NFTs.
With character art created by LaserBΞar, this mint is comprised of 10,000 unique Idols NFTs. Each NFT features several randomly generated attributes, including different types of eyes, skin, armor, hair, and accessories of varying rarity — from common to mythic. Immediately after the reveal, a robust secondary trade in Idols with rare features, such as zombie skin, laser eyes, Medusa helmets, and mythic Guardian armor, began in the Idols proprietary marketplace. In fact, on Day 1, one of the 25 ultra-rare “Ethereal” Idols sold for 14 ETH.
I’ve been a fan of Greek and Roman mythology since childhood, so I already liked the style of the Idols characters. Add on my newfound appreciation of the dynamics of scarcity and rarity in an NFT marketplace, and this project had me starting to feel the draw of Team NFT. But let’s not get ahead of ourselves. It’s the novel mechanisms built into this project that get my DeFi senses tingling.
Staking Rewards: The Start of the Virtuous Cycle
The Idols NFT project was designed from the start to be more than a mythology-themed PFP offering. It integrates NFT market dynamics and DeFi concepts to form what the project founders call the “Virtuous Cycle”.
This cycle starts with all of the ETH collected from the Offering mint being permanently staked with Lido Finance in exchange for an equal amount of Lido’s stETH (staked Ether) token. This move is meant to help secure the future of the Ethereum blockchain, and it also makes the Guardians of Ethereum a very apt name for this drop.
Now, instead of holding ETH, the Idols NFT Treasury holds stETH, which follows the market price of ETH while also earning a steady, additional return of stETH staking rewards from Lido Finance. (4.4% APR at the time of this writing.)
Neat, huh? Just wait. The DeFi fun is only getting started.
Sidebar: How ETH Staking Works
Here’s a brief explanation of ETH staking for those who might be unfamiliar with the concept. Without getting too far into the technical weeds, as the Ethereum blockchain transitions from a proof-of-work model to a proof-of-stake model, the rewards for validating blocks will go to node operators who have put up a certain amount of ETH — their stake — instead of to miners who run fast, energy-hungry computers.
Platforms like Lido Finance borrow ETH from people to put up as the stake for running validation nodes. In exchange, they give depositors stETH (1 stETH = 1 ETH) and regular payments of a share of the validation rewards.
This is one of the win-win models of DeFi. Validators can borrow ETH to run more proof-of-stake nodes, and ETH hodlers have a way to earn extra yield on their ETH investments.
Community Chest: NFT-Holder-Owned Treasury
Did I mention that the treasury is entirely owned by the holders of the 10,000 unique NFTs? Each Idols NFT effectively represents a 1/10,000 share of the Idols NFT Treasury. However, that doesn’t mean someone can turn in an NFT and withdraw stETH from the treasury. The principal of stETH deposited into the Idols Treasury is locked and can never be withdrawn by anyone, not even the founders. There are no keys. The smart contract for the Idols Treasury is an immutable one-way ticket. Think of the Idols Treasury as the Roach Motel for stETH.
Here’s why that’s a good thing for Idols NFT holders. The stETH staking reward income is split equally and paid to every Idols NFT owner in perpetuity. Since no stETH can come out, the treasury balance that these rewards are based on will never go down. That is, you can earn steady passive income by holding an NFT.
In short, an Idols NFT is both a unique PFP with aesthetic and rarity value in the art NFT marketplace and a token with an intrinsic value that entitles an NFT owner to a permanent stream of staking rewards revenue.
Growing the Treasury: The VIRTUE Token
The Idols NFT project is noteworthy for integrating staking rewards alone. But let’s examine how the rest of the Virtuous Cycle kicks this up a notch.
The project also builds in a compelling incentive for sending additional stETH on the one-way trip to the Idols NFT Treasury — further increasing the amount of stETH that earns staking rewards for the NFT holders. The Idols NFT smart contract includes a 7.5% commission on secondary sales. 100% of this commission is paid to those who have staked the project’s VIRTUE tokens. The most direct way to acquire VIRTUE tokens is to bond (permanently deposit) additional stETH into the treasury using the Idols bonding dashboard.
When people bond stETH into the Idols Treasury, they receive VIRTUE tokens. If they stake VIRTUE in the Idols Marketplace, they will get a share of the commissions earned on every NFT resale.
Are you starting to see the power of the Virtuous Cycle of incentives and rewards and the multiple ways people can benefit from it?
A larger Idols Treasury yields more staking rewards and stimulates demand for the finite number of Idols NFTs.
Demand for the NFTs results in NFT sales.
NFT sales generate commissions for VIRTUE stakers.
To get more VIRTUE, stakers bond additional stETH to the Idols Treasury.
Rinse and repeat.
Source: Idols NFT
Considerations: Risks and Cautions
As with anything in crypto and DeFi, there are any number of known and unknown risks with the Idols NFT project. As intrigued as I am by the elegance of the Virtuous Cycle and how well these economic models, incentives, and dynamics seem to work together, I’m still treading cautiously.
The most obvious potential risk with this project, or anything in DeFi, is smart contract risk. It’s possible there are flaws in the Idols smart contracts that could be exploited by hackers or scammers. In fact, on the first day post Offering, a white-hat hacker notified the Idols Team of a potential exploit in the marketplace smart contract. They were able to mitigate the problem before malicious actors could exploit it, but it was a sobering reminder of what can happen in DeFi. Here is their post on that event.
It’s also worth noting that the stream of staking rewards that NFT holders earn from stETH depends on the price of ETH, as well as on the stability and longevity of both Lido Finance and the Ethereum blockchain itself. It’s possible that proof-of-stake and/or the Ethereum blockchain will be replaced by something else in the future. (And in crypto, the future can arrive quickly.) Either of those events could eliminate the need (and rewards) for stETH. NFT holders will still own a piece of digital artwork, but the intrinsic value of the stETH each NFT represents could conceivably evaporate.
Moreover, there is the specter of regulatory uncertainty that haunts all of DeFi and crypto. Could a new law, ruling, or regulation suddenly throw a wrench into the mechanics or legality of the Virtuous Cycle? That remains unclear.
This is why it’s vital for everyone to do their own research, strive to understand the risks, and only invest what they could stand to lose. Here are some places to start with your research about the Idols NFT and Lido Finance.
With its clever design and innovative mechanics, the Idols NFT project appears to be at the vanguard of an exciting new type of NFT/DeFi hybrid. I look forward to seeing more projects from Idols Labs and others with undeniable appeal for NFT People and DeFi People alike.
Brian Knier explores technology, Web3, DAOs, and entrepreneurship and sometimes writes about his discoveries. He’s a contributor at BanklessDAO and you can find him hanging around various DAO Discord servers as Elemental #7845.
BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.
Disclaimer: this isn’t investment advice. This article has been written for informational and educational purposes only and it reflects my personal experience and current views, which are subject to change.