Executive Summary

TreasureDAO oversees Treasure, a decentralized NFT ecosystem on Arbitrum that is built specifically for metaverse projects. Treasure utilizes the currency MAGIC, which provides liquidity and governance within the ecosystem. Projects are built and linked through MAGIC, both narratively and economically.

In this fashion, Treasure becomes akin to Nintendo.

Nintendo’s strength was not only developing world-class games in-house, but also leveraging its gaming system as a distribution platform, partnering with third-party developers to bring their games to all Nintendo owners. Treasure endeavors to bring many developers and “metaverses” to their platform, all connected through MAGIC.

Treasure is located on Arbitrum, which is a Layer 2 scaling solution on the Ethereum network. While any crypto knowledgeable user who holds their assets on non-custodial wallets and transacts on decentralized exchanges can relatively easily make the transition to Arbitrum, the various barriers may increase difficulty of scaling and adoption, even amongst crypto-centric users.

An analysis of MAGIC provides depth and perspective on the tokenomics of the system and where incentives lie, which is mainly in Treasure Farming (i.e. development of NFTs) and mining of MAGIC. A strategic analysis of TreasureDAO indicates that users will come to Treasure because of incentive structures regarding the staking of currency assets that produce NFTs, both of which are interoperable.

Treasure incorporates a directed search strategy, setting up potentially dual-sided marketplaces. Dune analytics provides greater scope on project data and leads to two possible investment strategies: passive and active.

Passive investing offers the opportunity to purchase and stake MAGIC while active investing encompasses gameplay, interaction within the ecosystem, and potential staking of MAGIC and NFTs.

Collectors may do best by purchasing and staking MAGIC for the next 12-18+ month timeframe as L2’s become more user-friendly and participation increases.

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Overview

Treasure was founded in September, 2021 by John Patten and Gaarp as a complementary addition to Loot with composable currencies that users would need in a Treasure-centric metaverse. Treasure developed into TreasureDAO, which endeavors to bootstrap new, decentralized metaverses. TreasureDAO is tightly interwoven to the overall Treasure project, voting on which projects to onboard, distribution of the currency, and revenue sharing agreements from the marketplace.

There are three key components to Treasure: MAGIC (currency or power), Treasures (NFT - resources), and Legions (NFT - players).

Critical to understanding Treasure is understanding the governance structure of TreasureDAO, as the DAO has outsized influence.

Governance and therefore voting in the DAO is based on a weighted mechanism which combines amount of staked MAGIC with the lockup period (e.g., 10 MAGIC staked with a lockup of a year is worth more voting power than 10 MAGIC staked with a lockup of a month). MAGIC is the “natural resource”, or currency, of Treasure. MAGIC interacts with the NFTs (Treasures and Legions) to “power them up” and increase their benefits within the ecosystem. Players can earn MAGIC through playing, mining, and participating in Bridgeworld, the central metaverse within Treasure.

Learning Layer 2’s / Arbitrum

For a minute, imagine that a blockchain, like Ethereum, is a city like New York City and the price of land represents gas fees. As more people choose to live in NYC for the economy, culture, and social scene, the price of land goes up. To circumvent increasing real estate prices, developers start building skyscrapers.

Skyscrapers are the blockchain equivalent of Layer 2’s (or simply “L2s”) like Arbitrum, Polygon, and others. The skyscraper enables more people to live on the same ever more scarce real estate while benefiting from the jobs, theater, and restaurants of NYC and at the same time relying on the NYPD to conduct law enforcement.

No skyscraper needs to set up their own police force for security, it’s already provided by the NYPD!

Treasure currently operates exclusively on the L2 Arbitrum. The team selected Arbitrum for the significantly lower gas fees, wide adoption, available partnerships, and robust security.

To bridge ETH to Arbitrum, users should use the Aribtrum Bridge Tutorial. After you’ve bridged ETH to Arbitrum, you’ll be ready to purchase MAGIC on SushiSwap. Lastly, ETH is the gas token for Arbitrum, making it more attractive for users.

Note that “raw ETH” as you know it on Ethereum mainnet is different from “ETH on Arbitrum [or insert L2 here].” Both assets represent the same thing (ETH), but on different networks (mainnet versus Arbitrum).

As a bad analogy, think of carrying one single US dollar into Casino A, then swapping that dollar for a poker chip representing one single US dollar. You can carry that same poker chip into Casino B, and it still represents one dollar. However, you need to get Casino B’s poker chip to play in that casino.

Token Analysis

MAGIC represents the keys to the Treasure kingdom.

It is the backbone of the entire ecosystem, and as such, it is critical to understand the tokenomics behind MAGIC, where incentives lie, and how token emissions contribute to the burgeoning decentralized metaverse envisioned by the founders.

Treasure is attempting to create a virtual Proof of Work economy, by which one receives NFTs for staking their MAGIC tokens.

The example that Treasure cites is for a user to hypothetically stake MAGIC and diamonds (a Treasure) for a certain amount of time to then receive drilling tools in return, a one-time use consumable. The idea is that the rarest assets are earned through “labor”. It is worth noting that this model is a significant departure from the traditional DeFi model, which caters to mercenary farm and dumpers.

Since users are rewarded with NFTs that are rarer with greater commitment shown, arguably two significant changes are implemented. First, less MAGIC goes into liquid circulation because users are more interested in staking their MAGIC. Second, users receive an NFT they genuinely “earned” as opposed to simply bought on a marketplace.

MAGIC (350M total supply) will be distributed in the following ratio:

And with the following supply curve:

Token emissions represent a fairly standard emissions protocol with a twist.

The tokenomics of Treasure show preferential treatment of the Treasure farm and mining, representing a combined total of 58% of token emissions. With only 15% going towards the ecosystem fund, Treasure may struggle to truly bootstrap and accelerate other decentralized projects and marketplaces within its own metaverse.

Additionally, the team wants to incentivize liquidity long-term and has an interesting values proposition which diverges from DeFi 1.0 models.

In DeFi 1.0 models, users gathered more of the farmed resource as a reward for contributing liquidity. Effectively, the yield-bearing asset becomes what is ideally desired. Where Treasure experiences an interesting departure is that the “yield-bearing asset” which can be gamified is actually joy.

Gaming, at its core, is supposed to result in joy and the joy incurred becomes what players chase; a very interesting (if not idealistic) departure from the underlying sentimentality many in the NFT space only begrudgingly acknowledge: they are here for the money.

Strategy Analysis

To analyze the underlying strategic advantages and disadvantages of Treasure, we must ask the four basic questions.

1. Why do people use Treasure instead of others?

Users may gravitate towards Treasure because of the dual-incentives structure that rewards stakers of the currency with NFTs (the Proof of Work model discussed earlier), which is a novel concept.

Projects like Cool Pets, Wolf Game, and soon to be (rumored) Bored Ape Yacht Club reward users with an in-game currency for staking their NFTs. However, Treasure aims to reward users in the opposite model: NFTs for staked currency. For example, Cool Cats is attempting the gamification of NFTs through staking Cool Pets (v2). As a reward for staking a Cool Pet, the owner of those NFT(s) receives the in-game currency, $MILK, which can then be used for future purchases in the Cool Cats ecosystem.

However, Treasure aims to reward users in the opposite model: NFTs are rewarded for staked currency.

Furthermore, rarer NFTs are not simply handed out based on randomization, but rather on a combination of currency staked with NFT(s) staked. Users who endeavor to “earn” their NFTs more than simply pay for them may be attracted to this model more than the randomization model. We can most likely associate these users as synonymous with the gamer community, as the strategy is most often replicated in video games: play, earn, get rewarded with rarer, more powerful, or more useful items, then rinse and repeat.

2. What is Treasure’s strategy and the key questions we must answer?

Treasure is pursuing a primary strategy of directed search with a secondary strategy of image marketing. The key questions for the directed search model are:

a) Can Treasure get big fast on both sides (supply/demand) now?

Treasure may struggle to get big fast on both sides fast mainly for two reasons: the Layer 2 barrier and a supply/demand mismatch in the marketplace.

First, while any user who already uses Ethereum in a non-custodial wallet possesses all the necessary crypto skills to bridge assets to Arbitrum, swap for MAGIC, and begin transacting, the barriers remain formidable for large scale adoption. Referencing the mental model below, one can see that users who feel comfortable approaching the outer rings become fewer and fewer (although a user who operates in the outermost ring feels comfortable executing all the subsequent steps) given the higher level of difficulty and user confidence in the technology. Ring sizes are representative of the number of users operating in a given category.

Second, at its current rate, the small number of users on the Treasure platform and marketplace have driven the USD relative price of NFTs up while the number of developers and creators has dwindled.

The mismatch provides ample opportunity for developers, but limited opportunity with high risk for new users. New users must risk non-trivial capital to acquire NFTs that will have utility in the ecosystem, most likely seen as off-putting. Lastly, technologically speaking, there is no reason Arbitrum cannot accommodate the required transactions so that is not a limitation at this time.

With a Total Value Locked (TVL) of ~$2.19B, Arbitrum has firmly established itself as one of the dominant Layer 2 scaling solutions for Ethereum.

b) Is there a reliable peer-to-peer connection?

Treasure operates with a reliable peer-to-peer connection thanks to smart contracts, Arbitrum, and the security provided through the Ethereum network. Arbitrum and Treasure are subject to the same frustrations any NFT collector experiences with slow bridging, a slightly janky marketplace website, and the occasional failed transaction; however, the peer-to-peer connection established on the marketplace is reliable and will not hamper Treasure’s strategy.

c) Can we monetize the transaction?

Third, Treasure and Bridgeworld are able to monetize each transaction with a fixed 5% fee on each marketplace transaction.

A minimum of 2.5% of the fee is redistributed to the TreasureDAO and the remainder goes to the creator. Web3 proponents will be enthusiastic about 2.5% of each transaction returning to the DAO; however, one item of note is that the fee is fixed at 5%. Creators who believe they can command a higher royalty fee may not be interested in (depending on the creator in question) a meager 2.5% fee on each transaction.

3. How good are the data?

We can determine if the data in question is good by, in order, analyzing if the data is:

• Interesting
• Sourced
• Accurate
• Powerful.

Let’s take a look at daily active users. Daily active users correlate with transaction volume on the marketplace, a good signal of marketplace health and resilience and and interesting metric to begin with.

Utilizing analytics sourced from Dune, we know the data is accurate since it is pulled directly from the Arbitrum blockchain.

From the analytics, we see that DAUs (and transactions) peaked in February, 2022. The lower number of DAUs compared to more sizable gaming ecosystems shows a large delta in development and adoption.

Over the last three to four months, MAGIC has a daily active user count in the single digits on most, if not all, days.

This data begins to lead to a powerful and pessimistic conclusion for TreasureDAO: its best days may be behind it.

Futhermore, this cloudy narrative is reinforced in the recent surge in Optimism total value locked (TVL) compared to Arbitrum’s TVL:

Optimism incentives on Aave v3 led more users to gravitate towards Optimism and away from Arbitrum, further lowering the TVL available for TreasureDAO to leverage for the ecosystem.

What could a positive data narrative for TreasureDAO look like?

Perhaps the gold standard by way strictly of development and adoption in crypto gaming is Axie Infinity. Axie not only mismanaged an inflationary token supply, but also suffered a massive hack on the Ronin bridge. The combination of these two events led to Axie’s slow demise. However, Axie still routinely executes over 500-600+ transactions per day.

Axie is no longer a viable investment option for most collectors, but serves as a historical example of what GameFi may resemble in the future.

The delta between the Axie’s peak DAU count and TreasureDAO’s current DAU showcase how far Treasure must go to achieve the refinement of Axie while also the potential of MAGIC.

What could successful GameFi look like in the future? Well, AXS’ massive gains over the course of 2021 - a whopping 125,000% (not a typo: 1250x) - show that there is undoubtedly “something here”.

A bear case is that TreasureDAO is just a decentralized incantation that will suffer the same fate as Axie Infinity’s inflationary token hell and fall to its knees, even if distribution and interoperability are superior.

4. What is the risk versus return on investment (ROI) of investing in TreasureDAO?

Weighing the risk of Treasure can, among other factors, be segmented into two buckets: scaling and risk.

Scaling Treasure may be difficult as L2 onboarding is still burdensome for even the relatively knowledgeable crypto evangelist. Treasure adherents and enthusiasts will not see barriers. But the average user will, in all likelihood, experience pain and disorientation before giving up and throwing in the towel.

When compared to turning on a Playstation or, perhaps more appropriately, playing a crypto game like Axie Infinity, the user experience and user interface is not nearly as friendly or welcoming, which may turn users away.

Additionally, Treasure was recently hacked, with over 100 NFTs stolen in the process. Whatever the bug or exploit, users tend to shy away from projects if they do not have confidence in the security of the platform.

Despite the risks, Treasure clearly aligns incentives towards a directional north star in a way that is exciting.

Investments can most likely be seen in two categories: passive and active.

Passive investment in Treasure would consist of purchasing and staking MAGIC - a “set it and forget it” approach. The upside is that current buyers may find rock bottom prices and future token emissions through staking. The downside is that raw ETH, in the Dude’s opinion, is extremely valuable and should be spent judiciously.

Proceed with caution.

Alternatively, a user can dive down the rabbit hole, buy MAGIC to acquire Legions and Treasures, stake and raid, and truly dive deep into the gameplay.

Adherents believe the Proof of Work mechanism will reward commitment and dedication in the form of rarer and more valuable NFTs. Perhaps as with all things in crypto, if memetics takes control and investors see ample opportunity, fundamentals will fly out the window and the magic will truly begin.

Resources

Links

Website: https://www.treasure.lol/

Whitepaper: https://docs.treasure.lol/about-treasure/readme

Twitter: https://twitter.com/treasure_dao?s=11

Discord: https://discord.gg/treasuredao

Mining: https://mine.treasure.lol/

Medium: https://medium.com/@TreasureNFT

Marketplace: https://marketplace.treasure.lol/

Bridgeworld Litepaper: https://docs.treasure.lol/bridgeworld/bridgeworld-litepaper

Bridgeworld Master Game Guide: https://drive.google.com/file/d/1VA01N-2lEYn1EITXmk89CNfGJovwaTXR/view

Game Video Tutorials: https://www.youtube.com/channel/UCw3mq_ycQog6byQUspG-Pag

Team: https://docs.treasure.lol/get-involved/meet-the-team

John Patten, Founder/Creative Advisor: https://www.linkedin.com/in/johntpatten/

Gaarp, Co-Founder/Growth: https://twitter.com/_gaarping

End, Product Lead: https://twitter.com/notrealend

T1 Dev, Solidity Dev: https://twitter.com/pr0zy

Articles/AMAs: https://docs.treasure.lol/references/articles

TreasureDAO Hack: https://cryptopotato.com/hackes-exploit-arbitrum-based-marketplace-treasure-over-100-nfts-stolen/

Podcasts

NFTs Are 4 Ever Podcast: Episode 39 - TreasureDAO

Overpriced JPEGs (49:51): Recap - January 28, 2022

Bankless: https://www.youtube.com/watch?v=v5O5i5ZwM5E

Giancarlo Buys Tokens: https://www.youtube.com/watch?v=OP5_lLHux64

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