The Matrix NFT “Glitch”
On November 30th, 2021, Warner Bros. licensed the Matrix intellectual property to NIFTYs ( https://niftys.com/) , a brand new start up NFT company, to launch a NFT campaign to support the release of the film — and generate revenue?
The marketing started months ago as users were sent emails and Discord notices talking about the launch. The promotional KPIs were in full swing as eyeballs were being drawn to the promotion and the launch of the film. But, when you lifted the covers to understand what was happening, things got ugly pretty fast.
CRYPTO COMPANIES ARE USING HOLLYWOOD IP TO STOKE TOKEN PRICES AND DRIVE COMPANY VALUE
First, users had to pay $50 via a credit card using Stripe and “advance” users, as the company called them, has to use the “PALM side chain” (NIFTYs words) which is basically a forked Ethereum blockchain. Palm forces the user to use Palm tokens. Here’s their companies explanation:
NIFTY says that PALM is the native token of the Palm blockchain network. Like other blockchain networks, PALM is used to pay for transaction fees (“gas”) whenever a user submits a transaction on the network. In this form, it is an essential utility that both prevents network spam and supports critical network infrastructure.
It’s only an “essential utility” because they are forcing it that way. The masses don’t care what “token” they are using as long as they get an NFT. What NIFTY is doing is forcing users to exchange crypto or buy DAI directly, pay a mainnet gas fee to swap DAI for Palm. WB should find this all unnecessary.
They are using the WB/Matrix IP to force people into the Palm blockchain so they can become a bank. I doubt WB wanted to support the PALM banking system with the leveraged Matrix IP. I also doubt WB wanted users to pay on-chain gas fees that cost over $400 (as shown below) and have fans not even unlock their asset.
NIFTYS goes on to say that The PALM token will also carry governance rights, allowing community members to take part in the evolution and growth of the Palm network. Governance capabilities are not currently active, but are expected to be rolled out later this year.
This is a fancy way to say that token holders get to vote, but if you roll back the white paper (which you can’t as they send you to this link; https://docs.palm.io/en/latest/) a guess would be that a majority of the PALM token is held by founders and investors and they will have all the say, regardless.
Palm also mentions the following, While mainnet Ethereum has plans to phase out Proof of Work mining over time to a more environmentally friendly mechanism called Proof of Stake, Palm provides an immediate solution to the ecosystem that allows eco-conscious artists and brands to dive into the world of NFTs without the heavy environmental footprint.
Yes, exactly, Eth is removing Proof of Work and all these companies claiming “environmentally friendly” ecosystems will not have to worry about that statement because Eth will be eco friendly as well. Furthermore, most people on the public chain transact in Eth, so by forcing users to trade on Palm in DAI, means they have to do swaps on the public chain which means they are still using Proof of Work solutions, Palm is just as “guilty” .
NIFTYS does offer the credit card model, but with the young platform, it didn’t work. What was surprising was when the founder was caught off-guard regarding how many fans would come to the site — at the time of the Discord conversation it was about 100,000 — he said that they underestimated the reach. 100,000 fans of a billion dollar franchise is a drop in the bucket, how could they underestimate the load is probably based on their limited experience working with major IP and the film business in general.
During the live Discord, a contributor jumped in to warn everyone that fake listings of Matrix NFTs on Opensea were available. This is ridiculous and has to stop. Studios have the ability to educate their fans, collectors and supporters and distribute their IP on white listed distribution exchanges so fans don’t get screwed. A fan needs to be assured how a WB asset is protect by the brand in order for NFTs to have a future.
There will always be fraud, but the blockchain will end this it if the IP players are smart and distribute their content through a globally verified node. Fraud will disappear when users and collectors understand this and brands and IP manage the IP like they would manage raw footage from drives or film to the edit bays.
TECHNOLOGY WILL GET BETTER?
During the live NIFTYS Discord forum during the launch they called the breakage “par for the course” and “normal” for blockchain. No, that’s not correct, it’s been a handful of years, companies simply need to be better. In 2018, Lucid Sight launched Crypto Bobblehead Figures which were unique collectible giveaways. Great concept, but terrible execution as fans had to download an app (imagine 60K fans simultaneously trying to download an app at Dodger stadium), unlocking an asset and if you want to trade it you have to have ethereum. I like the dinner conversation, “Dad, can you give me your drivers license, I need to do a KYC check to open a Coinbase account to get some Ethereum so I can trade my crypto bobble head with my buddy”. But, they had the excuse that they were early.
The Matrix execution is the same — fun idea — but too many hoops to jump through for the average consumer. Engineers designing marketing campaigns for IP is a bad model, especially when the tech breaks.
DATA, DATA, DATA
The other IP issue is data.
Who owns the customer? For decades studios have been blocked by the middleman — Years back when I worked at WB I was at a conference and a drunk programmer spilled beer on me at an event. He apologized and noticed that I worked at WB and told me that I and Hollywood were a bunch of idiots. I was about to move on when he said that for all these years, the studio has never known their customer. I paused, he was right.
-When we sold a movie, the theatre own the movie fan.
-When we rented a movie, Blockbuster owned the movie fan.
-When we sold a DVD, Walmart/Target owned the movie fan.
-When we streamed a movie, Netflix owned the movie fan (they are trying to change that)
-When we sold licensed goods, the brands and retailers owned the movie fan.
For the first time in tech history the studios can change that (contact me and I’ll walk you through how) — But first, IP owners have to stop lending billion dollar IP to companies that are forcing users to use and build their platforms to help grow them.
Remember Youtube, stealing Hollywood IP in the early days to promote the business. This same model is being used by cyrpto and blockchain companies forcing users to use “their” blockchain, or “their” token or “their” “walled garden” to try and control the value exchange — which is ironic as the blockchain was supposed to be open.
So, can the producers of the Matrix talk to these wallets? Can WB re-promote? Who has access? If I were WB I would demand it.
Promotion or Revenue?
If WB was planning on a self-liquidating promotion then selling 100,000 NFTs at $50 makes sense if they had hard dollar costs — but for a billion dollar brand, $5M is not worth depriving a global audience of hundreds of millions the opportunity to own their first NFT.
TO SEC VIOLATE, OR NOT?
The live Discord was a case study for potential SEC violations. The Discord had the company leads in a public chat room basically hyping the value of the NFTs in secondary markets. You can’t sell unregistered securities and pump them in public forums, at least, that’s what i’m told.
And even then, users were put off on the way they received value back after they sold them. Example, if you sell your unregistered security you get paid back in DAI, which then had to convert to Eth or taken to Coinbase, etc. So, you can pay with credit card but are stuck with DAI, and most Matrix fans wouldn’t have the slightest idea of how to use a “non eco friendly” solution. Most humans have never owned an NFT, delved in Crypto or know what the blockchain is, so forcing them into swaps using DAI is not the best idea.
FINALLY, DON’T CHANGE THE RULES
During the live chat on Discord it was brought to the attention by the CEO that they were going abandon the 25 limit per user and lower it to a 5 limit per user NFT purchase. Obviously, this was a bad move, never change the rules mid game as you will piss off users. Many more were now brought into the fold to give their thoughts while many were angry that the early group that slipped through were able to purchase the original 25.
To make matters worse, the also addressed the fact that the “glitch” in the Matrix was a major problem through email;
We’re also happy to announce that all Nifty’s users who queued yesterday for a Matrix Avatar will be receiving a free “glitch in the Matrix” NFT. More information to come, please stay tuned.
For many, this is a slap in face as they spent real fiat to convert to DAI or spent hours they can’t get back to only be rewarded with a “new” NFT that wasn’t what they wanted….
If you are WB and the Matrix, you should give the first 100,000 people (or bots) one of the 100,000 NFTs at no cost and move on. Don’t be greedy and try to make a few bucks off a billion dollar franchise.
By Jonas Hudson, Co-Founder, The GFT™ Exchange.
About The GFT™ Exchange: The GFT™ Exchange enables IP partners, brands, distribution partners and marketplaces to mint, distribute and reconcile trusted, individually identifiable digital assets to customers. Through a private/public blockchain hybrid approach and an IP alliance (called the GFT™ Alliance), the GFT™ Exchange enables protection for IP owners and consumers when it comes to provenance, asset security, and secure financial reconciliations.