If you were around last summer, you might remember the Loot collection. It was the central part of a game project that launched to wide acclaim at the end of August 2021 when profile pictures (PFP) were all the rage. 

While the PFP market was full of color, the images attached to Loot NFTs were just a few lines of white text on a plain black background, making them immediately stand out. The game itself also differed from most blockchain games available, because there was no ‘game.’

A Loot NFT: Bag #2140

The game—its rules and objectives—needed to be invented by players using Loot NFTs as the assets to play with. Mostly this happened in the style of the fantasy role-playing game (RPG) Dungeons and Dragons, but it could be played however players imagine.

Loot is therefore a sandbox: an NFT collection that offers gaming possibilities limited only in imagination. Its unrestricted nature led to wild bull-market fantasist speculation about the collection’s potential value.

In the week after launch, Loot NFT prices rocketed to over 20 ETH, now they’re settled at around 1 ETH. Loot remains widely played and continues to have over seventy thousand followers on Twitter, and has spawned multiple derivatives and expansions, each with its own collection of NFTs. In short, Loot created an ecosystem out of nothing. Like magic.

Loot’s floor price. Source: OpenSea

But Loot has a ‘problem’ that the project I’m going to write about improves upon. The problem is that the NFTs in Loot’s collections and derivatives can’t interact with one another and consequently can’t build value. Spells want to change that.

Spells describes itself as ‘on-chain magic.’ It’s part of the same type of sandbox RPG as Loot, but instead of each NFT representing in-game objects, Spells NFTs are ‘actions’: magical spells that can be cast on players or objects to affect a game’s outcome. These actions build value thanks to the tech behind the NFTs.

The tech is a new token standard known as ERC-5050, contributed to by Spells creator Hypervisor. The TLDR is that these NFTs affect each other and record the effects on-chain, making changes permanent.

As an example of how this works, imagine an ERC-5050 in-game sword asset. That sword has magic cast on it using a Spells NFT and is improved in some way, making the NFT owner more likely to win. That improvement stays with the NFT forever, giving its owner a permanent advantage in every other compatible game, and a higher resale value for the NFT.

Clearly, ERC-5050 NFTs can add value in a way that existing NFTs don’t. But there is a question about what other compatible games exist⁠—since it is the porting of the asset from one game to another that creates value.

The good news is that the Spells ecosystem is expanding. So far, two new projects have been built using the new token standard. One, Multiplayer, uses ERC-5050 for generative art purposes, while the other, Terrarium (minting now), is intended to work with the Spells game⁠—however users imagine.

For now, it’s definitely worth knowing about the new tech and considering owning Spells NFTs. The genesis collection of 3,333 Spells NFTs is available now with a floor price of 0.02 ETH. Several accounts hold multiple NFTs, their anticipation of ecosystem growth is giving my inner gigachad an idea, which I’ll save until the end.

Along with the genesis collection, the Spells website has an ‘eternal mint’ function whereby new NFTs can be minted forever. A Variable Rate Gradual Dutch Auction (VRGDA), whereby prices fall over time, is used to determine the price of these tokens.

The VRGDA controls how fast prices fall to prevent excessive inflation of the collection’s NFT numbers and targets three mints a day. Hence, minting may often be more expensive than buying, but if the number of mints on any particular day is low, a bargain may be available.

The overall decision to make here is on whether or not you believe the ecosystem will expand. If it does, I think it will be a slow burner taking time while products are developed, and gamers are on-boarded to blockchain.

There is a huge audience globally as text-based RPGs like Dungeons and Dragons are deeply ingrained in computer, pre-internet, internet, and crypto culture. Games like Spells are likely to appeal to them, particularly as Spells looks set to avoid the zero-sum ponzinomics of other blockchain games.

Dungeons and Dragons spawned an entire industry. Source.

Above all, the critical idea to remember is that Spells NFTs work together. Even if other developers make NFT games and collections, they won’t necessarily compete for market share. Logically developers should complement existing collections⁠—to tap and add to pre-existing utility and value.

As reluctant as I am to believe in flywheels, ERC-5050 NFTs are a definite technological step in the right direction. In-game assets that build value incentivize gamers and developers towards collaboration rather than competition. Alignment between the interests of an ecosystem’s various users is critical in creating lasting value, remember Loot’s ‘problem.’ With Spells at the heart of building this alignment, it could be the magic your portfolio needs.

And that gigachad idea? Well, imagine if Loot converted to ERC-5050 NFTs. Firstly, there would presumably be an airdrop of replacement tokens for Loot holders. Bearing in mind how ERC-5050 would transform Loot’s value proposition, you can imagine what it would do to NFT prices. Now, ask yourself: ‘If I was in charge of Loot, would I want it to make more money?’

Secondly, notice that while Loot is all about objects, Spells is all about… spells that work on objects. Consider what Loot moving to ERC-5050 would do for the value of Spells’ NFT. This is what I suspect at least some of the accounts hoarding the Spells collection are betting on.

Until next time

Disclosure: At the time of writing, the author held several NFTs, ETH, and other cryptocurrencies. Read our trading policy to see how SIMETRI protects its members against insider trading.