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Dynamics of a networked market

“There’s just no activity” she said, “they buy the plots, and basically never revisit the site, its frustrating and we can’t continue to grow like this”

This was the 2nd call I’d taken and it has only been a few weeks since she’d started the job trying to figure out the growth of this business, an NFT market place based on a virtual world, selling virtual land plots. It was clear everyone had been working hard to make this a success.

We had to go back to first principles and really look at what was going on. What we had was a world map, with plots (NFTs) for sale at a fixed price, we could see that there was some early adopter interest from punters willing to put a few dollars on a plot and camp-out (no pun intended) on the off chance the platform would go viral and explode in interest. But the reality was that people would buy a few plots and leave.

Something was missing… something to trigger activity, something to get people who’d already bought a plot to return, and create an urgency in potential customers to buy before they missed out.

I’d been playing celebrity stock exchange and had a virtual stock trading account for years, trying to practice and learn, and it dawned on me that any market required some fundamental mechanics to exist before you could create a flywheel effect.

There are basically three components:

  1. universal rules set outside of the network market
  2. pegged value proportional and influenced by the universal rules
  3. volatility from the network interacting with the universal rules

Universal rules set outside of the network

For a network market to work, there need to be belief that the rules are transparent and fair, people don’t like to play games that are rigged or that are ambiguous, we like clarity about how to win, even if its complex, we also want to be put in a position where if we apply a skill (e.g. research, or insider information) we can have an unfair advantage in navigating the rules of the system. So ultimately, a network market requires rules that are known to all, which are sufficiently complex as to allow individuals to be able to see opportunities. Additionally, these rules need to be fairly static and not subject to manipulation by players or the platform.

Pegged value proportional and influenced by the universal rules

Assuming we have rules that govern how the system works, we then need a way for each ‘unit’, in this case a ‘plot’, to interact with the rules in some way, so using this plot example, we can say that the value of the plot is governed, and therefore interacts with the rules, by having the value pegged to, for example, the level of interest in a plot, as measured by ‘likes’. So in this example, the rule is – ‘ the more likes a plot gets, the higher the value’; therefore the values of each plot are relative to each other as governed by the percentage of the volume of like generated by the network market.

Volatility from the network interacting with the universal rules

Its not sufficient for a network market to simply stop at having plots who’s values are tied to the network like count, that results in a relatively static network market, so we also need to draw attention to the fluctuations, we need to highlight the rate of change in the values of plots to generate excitement and activity, since one of the universal rules will be ‘volatility generates opportunity’

Applying these 3 principles will result in an unstable network market where the value of the nodes are constantly changing based on universal rules, which a user, equipped with the right knowledge can capitalise and profit from. And with this, a newsletter listing 20 new plots was sent. within weeks, we started to see renewed activity and an increase in repeat purchases.

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