This a series where I dive into the barriers preventing you from making huge gains on your NFTs.

Consider for a moment why the “allow list” concept exists for NFT projects. In the absence of the AL mechanism, the market uses first-come first-served auctions to mint an NFT collection. Not only is that gas inefficient (due to intense gas wars when the hyped project is released), but it also permits devious behaviors by sophisticated power users.

In DeFi, it's the MEV frontrunners. In NFTs, it's hackers who extract rarity metadata before the public mint (e.g., from Testnet or IPFS), then use that data to selectively mint only the rarest items. Paradigm Capital explains this in detail here. In short:

An exploiter extracts the collection’s metadata, allowing them to represent the relative frequency of all traits in a single rarity score. Using this score, they can then determine the highest-value NFTs of a collection.

The exploiter then breaks the minting contract’s randomness to mint only the rare, highest-value NFTs they want.

The same article by Paradigm offers a checklist to determine if a project uses "fair drop" concepts. From the same article:

Unexploitable fairness: Launches must have true randomness to ensure that predatory users cannot snipe the rarest items at the expense of less sophisticated users.

No race conditions: Whenever an NFT (or any good, really) goes on sale below its fair market price, it turns into what Vitalik Buterin has called auction-by-other-means. In practice, buyers race to get their transaction mined as fast as possible or attach large bribes to incentivize miners. Any auction-by-other-means favors people with deep knowledge about the blockchain and access to power tools like bots, private relays like Flashbots or Eden, or even direct-to-miner access.

Time-zone agnostic: Commonly, FCFS launches are announced at a particular block height, and then sell out in a short period of time. No matter what block height is chosen, it will always disadvantage users of other time zones who are currently sleeping or at work. Therefore, launches shouldn’t be too short so people can participate without changing their daily routine.

Gas-efficiency: Transacting on chain (especially on Ethereum) is expensive, and so a good launch should try to minimize the number of transactions that users have to make.

Inclusivity and sybil-resistance: Often, it is in the best interest of an NFT creator to ensure the launch is open to a diverse base of holders, even if it causes the market to clear a bit lower initially. That is because a vibrant community is what ultimately drives the value of a collection in secondary markets.

Trustlessness: Of course, all that said, the launch mechanism should work to preserve the properties of the underlying blockchain. That means it has to afford the aforementioned benefits without becoming custodial or requiring too many trust assumptions in the operator.

I argue that PROOF's recent allowlist raffle for Moonbirds is the best and most recent example of a ”'fair drop.” Watch this explainer from Kevin Rose himself.

First, as far as I can tell, there is no unexploitable fairness for the Moonbirds mint. Users sign-up for the PreMint.xyz allowlist and if selected, then you get to participate in the mint. Each person is limited to one Moonbird per wallet address. I believe this eliminates predatory sniping of the rarest items at the expense of less sophisticated users. But we’ll know more after reviewing the smart contracts underneath the mint.

Second, the Moonbirds Premint raffle meant no race conditions for participants.  Sure, I hate waiting seven days to find out if I got a spot... But it feels pretty great that I’m not stuck in front of a device at a designated time, constantly reloading my device, inevitably crashing the site and clogging the network. (I’m having flashbacks of a drop gone terribly wrong on Parallel, the trading card game, where an off-chain pre-mint rush caused their web app to crash despite being protected by Cloudflare DDoS services!)

Third, the Moonbirds raffle means that the whole world can participate, highlighting elements of inclusivity. The alternative, picking any time for the drop, means that half of the world cannot realistically participate given time zones. I’ve been there, setting the alarm for 3:00 A.M. – only to get beat out by a bot.

Fourth, the Moonbirds raffle was gas efficient.  I simply had to sign the transaction to prove my eligibility, rather than transferring the amount and potentially receiving a failed transaction that just wastes gas.

Fifth, the Moonbirds raffle ensures that the launch is open to a diverse base of holders. This Premint.xyz raffle for Moonbirds required 2.5 ETH per wallet, Twitter verification, and Discord verification, to prevent whales from registering multiple times. Not impossible to overcome these hurdles, of course, but significantly harder. Ultimately, a diverse base of holder is a good thing because “a vibrant community is what ultimately drives the value of a collection in secondary markets.” Id.

Sixth, the Premint.xyz launch mechanism may be trustless. According to Premint’s website copy, it “randomly select[s] the collectors and community members to win a spot.” I have not been able to confirm that they use a Chainlink VRF function, as it appears that the raffle occurs off-chain. Until I receive additional information from Premint, it appears you do require some trust assumptions here.

That said, the raffle concept flies in the face of the professional NFT traders who is grinding for alpha – secret or insider info that offers an edge against the market. If the raffle is truly random, then a trader cannot outperform the market. They have to get lucky. So what’s an NFT trader to do?

The next best alternatives are to participate in mints that require grinding into the allow list. This usually comes from doing favors, publishing memes, or contributing code to projects. Or worse, you have to schill a project on Twitter and Reddit. At some point, all of that effort has to be compared to the upside potential of the projects that you are minting. Don’t forget to do a basic ROI calculation on your most valuable asset – time. It is painful to grind 40 hours a week to mint a few projects – and then none go to the moon.

If only we had a time machine because today’s common knowledge is yesterday’s alpha. What if you could travel back in time and buy that BAYC for 1 ETH?

Would you do it?  Why didn’t you?

Lack of knowledge? Lack of conviction? Lack of capital?

I want to know.  Tweet your comments here!