This is my investment memo for $GHST, the token which acts as the base currency of the Aavegotchi ecosystem. This project aims to make DeFi fun by empowering DeFi-staked assets as playable NFT collectibles backed by digital value, bringing new layers of composability within the Ethereum ecosystem.
The Aavegotchi project is well placed to capitalize on two overarching trends and use-cases by onboarding DeFi users and NFT participants onto a burgeoning play-to-earn ecosystem. Prior to the mainnet launch directly onto Polygon/Matic L2 on Mar 2 2021, the Aavegotchi project has already:
- secured key positive-sum partnerships across the DeFi and NFT space
- attracted an ever-growing engaged community
- achieved well thought-out tokenomics to incentivize adoption and growth of token price and,
- achieved successful DAO governance implementation with fast-growing treasury.
Team and achievements
· Co-founder and Development Lead: Coderdan — Experienced pseudonymous NFT and DeFi developer, Bullionix, YieldHero, 2nd prize ETHGlobal’s HackMoney Aave challenge, CEO Pixelcraft Studios
· Co-founder: Jesse / gldnXross — Bullionix
· Pixelcraft Studios as Lead Developers of Aavegotchi with over a dozen staff
· Stani Kulechov and Aave team as official advisors and partners — the Aavegotchi project was initially funded by an Aave ecosystem grant
· NFT Awards 2020: Aavegotchi Raffle Tickets Finalist Most Innovative NFT and Finalist Adoption Potential.
Value Proposition
For DeFi users and infrastructure
Aavegotchi leverages existing DeFi infrastructure to provide users and assets an avenue to a composable play-to-earn NFT collectible and gaming ecosystem.
In addition, Aavegotchi provides value-add NFT functionality on top of existing DeFi frameworks. For example, this includes the Aave Health Factor at a glance, additional NFT ecosystem rewards/yield from Aave lending/borrowing positions.
The project in turn increases moat and stickiness around the Aave protocol assets as each potentially valuable Aavegotchi represents a user’s locked assets.
For blockchain gaming/NFTs
The $GHST tokenomics and Aavegotchi ecosystem design are built for a potentially self-sustaining and ever-growing play-to-earn gaming ecosystem, with demand for the $GHST token reflecting growth and adoption of the project.
NFT collectibles are burdened greatly on L1 Ethereum due to high gas fees, particularly for minting NFT assets. Aavegotchi is currently placed to be a leading L2 innovator allowing for low-fee adoption for all sizes, spearheading the NFT L2 ecosystem on Polygon/Matic.
Market size
Aavegotchi is capitalizing on two major overarching narratives within the current cryptocurrency boom:
- Total NFT sales volume in the space exceeding $200M, of which $40M comes in the past month (source: Non Fungible)
- The DeFi ecosystem growing close to $60B (source: Defillama.com)
There is an immediate market opportunity for Aavegotchi to capture value from existing Aave collateral holders (~$5.24B).
In addition, there is future opportunity for Aavegotchi to leverage success and support on Aave protocol to provide their experience on top of staked positions for major players across DeFi ecosystem ($17B across major lending protocols) and to go on to represent LP positions (currently $14B).
Product Milestones
The partnerships and integrations in place before the main-net launch will allow for a full NFT collectible product experience launch on L2 in February 2021. These currently include:
- Quickswap integration and Polygon/Matic L2 deployment chosen for sufficient decentralization, EVM compatibility, readiness for production deployment, growing NFT network effect on Matic and interoperability with other NFT projects
- Cometh L2 composability partnership
- Polyient Games Ecosystem partner
- Aave partnership and integration
- Chainlink VRF integrations for provable rarity traits
- Binance GHST token listing in Binance Innovation Zone
Products fully developed and ready for deployment include:
- Full mainnet experience developed and just awaiting Chainlink VRF deployment on Mainnet for NFT random trait distributions
- Full decentralized AavegotchiDAO implementation with bonding curve sales accruing fees to the DAO and multiple successful proposals with latest vote receiving 16% quorum reflecting healthy engaged community
- Full marketplace launching alongside full Portals experience to summon Aavegotchi ghosts and wearables in March, of which 0.5% of marketplace fees go to the AavegotchiDAO
- Aavegotchi unique traits, rarity score, spirit (staked collateral maTokens), wearables, badges, consumables, raffle tickets, potions
- Successful liquidity migration program run by Aavegotchi, QuickSwap and Matic resulting in GHST-QUICK being the largest liquidity pair on QuickSwap
- Successful bridge created to port aTokens to Matic with Quickswap pool USDC/maUSDC to swap to Matic version of aUSDC.
Additional minigame functionality is still under development
Tokenomics
The $GHST token is designed from the team with 4 aims in mind (source: Aavegotchi wiki):
- Healthy play to earn ecosystem that rewards active players and DAO participants
- 40% of earned $GHST will be distributed back to players via player rewards incentivizing active players with Top 100 Rarest Aavegotchis, Top 100 Kinship Scores, and Top 100 Experience
- $GHST token provides governance voting power in the AavegotchiDAO
- Participating and voting in the DAO rewarded
- Tokens can later be earned by playing and winning in minigames.
2. GHST token has strong foundation for long term value capture
- $GHST is the base ecosystem currency for the entire Aavegotchi ecosystem, allowing for purchase of various on-chain Aavegotchi assets including Portals, wearables, consumables and collectibles
- $GHST can be staked to earn $FRENS (used to buy raffle tickets for wearable prizes)
- 33% of all GHST spent on portal and item sales will be burned from supply to counterbalance inflationary bonding curve
- Unlimited bonding curve mechanism will result in $GHST token price reflecting organic demand and usage of the token, and more resilient to potential price manipulation by larger players.
3. Building treasury for AaveogotchiDAO to use in discretionary spending
- 10% of revenue initially distributed to the DAO treasury
- 0.3% of bonding curve sells accrue to the AavegotchiDAO treasury.
4. Provide ongoing financial rewards to those developing Aavegotchi
- 17% of GHST revenue goes to the development team Pixelcraft Studios, to be mainly reinvested into promotional activities for business growth (liquidity incentives, marketing, giveaways, grants)
- Ecosystem Fund goes toward funding development by non-Aavegotchi core team members, promotion, and marketing
- Higher time frame vesting on Team funds incentivizes long term contributions from core Aavegotchi team.
All other items and levels in the Aavegotchi ecosystem are also used in effect for the above aims so there are multiple ways to incentivize and reward users and developers outside of the native $GHST token. For example, Discord status levels, wearables, consumables, raffle tickets.
The $FRENS points balance is also a large part of the Aavegotchi ecosystem as it represents staking rewards for user contributions. Currently $FRENS are obtainable through staking $GHST tokens and are used to buy different varieties of raffle tickets which are drawn for limited edition wearables. The project has had 3 rounds of raffles so far and rewards early users and $GHST stakers with wearables before launch.
The component around $FRENS and raffle tickets for wearables adds a level of gameplay and excitement on top of the game itself, and should lead to a healthy and competitive marketplace for the limited edition wearables themselves.
Competition
No other direct competitor in the blockchain space is close to providing this sort of gamified experience on top of existing DeFi infrastructure, which gives Aavegotchi a strong first mover advantage.
Aavegotchi’s game mechanics and avatar product itself will be the competitive advantage in this case. In addition, the established usage and adoption of the product will likely create a community moat around the product.
Potential Competitors
Charged Particles is a platform which provides additional utility into NFTs via programmed functionality. It may compete against Aavegotchi for underlying assets (e.g. aToken marketshare), but could also be a potential positive-sum partnership for Aavegotchi to be leveraged as one of Charged Particles’ use-cases.
Others in Blockchain Gaming
Most blockchain games are not prioritising functionality on top of existing DeFi protocols, but rather a complete game experience. Potential userbase should be marketshare for both these games and Aavegotchi.
Other participants in the blockchain gaming industry may potentially compete and grab marketshare and liquidity from the Polygon/Matic ecosystem if it provides a better UX or foundation for developers. For example, Axie building on Ronin L2 or games built on Immutable X’s zkRollups.
Potential Partnerships
Possible positive-sum integrations that the Aavegotchi team could target are:
- Any assets staked in DeFi protocols can hypothetically utilise Aavegotchi’s ecosystem on top of their underlying services, and therefore Aavegotchi can partner across the whole ecosystem to utilise their staked assets including AMM LP assets, lending/borrowing Collateral assets, insurance cover, staked assets, and interest bearing assets.
- All NFT assets are composable and therefore Aavegotchi ghosts and wearables can potentially be utilised in non-native protocols, marketplaces, or ecosystems. Integration partners in the NFT space could be NFT & blockchain gaming ecosystems, NFT marketplaces or auction-houses, open-world blockchain games, or NFT liquidity funds.
Community
There is a healthy and passionate community providing huge value-add to Aavegotchi ecocsystem built through successful incentives and marketing programs as well as wearable and raffle mechanisms rewarding early contributors.
- Viral marketing, social media contributions, wiki creation and maintenance, bonding curve testing & feedback, and whitepaper feedback rewarded through Discord ‘Aagent’ tiers campaign
- Aavegotchi avatars growing in usage across Twitter and Discord (e.g. @StaniKulechov)
- Successful deployment of decentralized AavegotchiDAO with active governance voting through periods of high ETH gas fees.
Metrics
Treasury
https://etherscan.io/address/0xffe6280ae4e864d9af836b562359fd828ece8020
- 116K DAI accrued in 0.3% bonding curve sale fees as of 19 February 2021
Community
- 1000+ Discord members
- 17.4K Twitter followers
- 3,477 Telegram members
Token Metrics
- Current market capitalization of $45M at a price of $1.22 as of 19 February 2021
- Fully Diluted Value of $55M
- 4,711 holders
L2 Adoption
- 8.4M $GHST migrated to Matic successfully through liquidity mining incentives with Matic and Quickswap
- $2.5M of $GHST has been migrated to Quickswap resulting in it being the top liquidity token outside of native QUICK token
- GHST-QUICK top trading pair on Quickswap with $4.25M of liquidity
Risks
- We have yet to explore the full UX of the platform mechanics themselves, and therefore the defensibility and sentimental/community moat around Aavegotchi NFTs and associated game mechanics have yet to be tested. The Aavegotchi team will need to stay laser focused on improving and expanding on UX and ecosystem functionality to ensure growth trajectory.
- Aavegotchi’s functionality is built on top of DeFi positions and is therefore tied to the success and growth of the DeFi protocols themselves (particularly Aave). Whilst Aave is currently a DeFi industry leader, Aave and Aavegotchi’s success will still depend wildly upon the overall cryptocurrency market and proportion of speculative market participants.
- Migration to Polygon L2 has fragmented $GHST liquidity between L1 and L2. Complexity of migration may inhibit users in adopting L2 or avoiding Aavegotchi altogether. Aavegotchi will need to anticipate trends between different chains, ETH L1, ETH L2 options to prevent any hindered composability and grow network effects.
Investment Recommendation
I believe the $GHST token will rise in valuation upon increased usage of the token for ecosystem functionality. As the March 2, 2021 mainnet launch of Aavegotchi ghost summoning and wearable marketplace represents the deployment of the bulk of anticipated product features, it should translate to increased and sustained demand for the token to feed ecosystem activity.
The current Feb 23, 2021 valuation of $1.22 USD / $GHST token at a market capitalization of $45M represents a good risk-adjusted entry price as the recent run-up from a local low of $0.53 USD / $GHST in Jan 2021 bore with it the uncertainty and execution risk around L1/L2 deployment.
