I stumbled across this Twitter thread the other day, of some web3 profiteer pitching ideas for how to extract value from existing brands, using blockchain tokens. Most of them are monetized loyalty programs operating under the assumption that the loyalty rewards would have an exchangeable value as currency on their own; or else, they're just another way for the businesses to shift costs to consumers by gamifying their externalities.
Naturally, I clicked the person's profile, in which she boasts that she is the creator of the "world's 1st destroyed diamond NFT," which began as another Twitter thread that … honestly, explains it all pretty perfectly:
If I make an NFT of 1980 Lando Calrissian action figure, and it gets destroyed in a fire, I still have the same asset … right?
To prove her point, Tasha labs did indeed buy a diamond, destroy the diamond, and then mint an NFT of the diamond on OpenSea. From the listing:
I went and bought a real diamond for $5k—> destroyed it—> minted a NFT for the diamond. I wanted to see how much value the NFT retains.
Many don't understand why this exercise would work, including my mother who is a savvy investor and an accountant for 30 years. I had a long debate with her, which I wrote about here (https://taschalabs.com/nft-is-better-than-diamond-heres-why/).
But my basic idea is that a physical asset like a diamond has value because of two functions:
1/ physical utilities function 2/ asset function as a store-of-value (SoV)
When you destroy a diamond and create a NFT in its place, you transfer function #2 to the NFT. Since by destroying the diamond, the 1-to-1 mapping between diamond and NFT is cemented, the NFT should retain the SoV part of the diamond's value.
A NFT can serve the role as a SoV, because it's able to satisfy 3 basic criteria for something to qualify as an "asset":
1/ durability 2/ limit on supply 3/ social agreement
I also think overtime NFTs will replace physical assets like diamond and real estates, because NFTs are a much more user-friendly asset class for holding and transacting, compared to physical assets.
Sure enough, Tascha did eventually transfer her destroyed diamond NFT to someone else, for 5.5 ETH — which, at the time of sale, was roughly equivalent to $16,500, though it's currently closer to half that value. And to be fair, that is a value increase from her initial investment! So maybe I'm the idiot. Or maybe this just further cements my belief that this is all just a value extraction scam that upholds the inherent valuelessness of government-derived currencies. But hey, I guess it's a cool idea to skirt around the system?
Tascha's Destroyed Diamond [OpenSea]