Why -EV Packs Are Actually Good for Top Shot

Let me explain...

The recent Throwdowns pack drop will likely go down as a turning point in Top Shot’s story. For the vast majority of Top Shot users, the primary strategy has been quite simple: see a pack, buy a pack. It’s even the advice I gave my Dad when he expressed interest in joining the platform and getting his feet wet in NFTs. With Monday’s Throwdowns pack drop, everything might have changed.

As many had warned, and most came to realize soon after the drop, these packs could be characterized as having negative expected value (-EV); for a typical pack, the Moments you received were worth (measured by the current marketplace) less than the upfront cost to purchase the pack. Greg Murray dove into the data, and found that the expected value on a Throwdowns pack was about $116, or a $33 loss.

Curious to better understand Top Shot users’ sentiment towards these -EV packs, I posed a question on Twitter: “Knowing what you know now, would you still have purchased a Throwdowns pack?”. One day later I categorized all of the responses, and here’s what I found:

Across 165 responses, my audience was split right down the middle: 82 No’s, and 83 Yes’s. Perhaps some of the loudest voices in the room are negative, however the numbers don’t lie - the room is split. For a bit more detail, I further organized the responses into four more opinionated categories: Hell No, No, Yes, and Hell Yes, and here are those results:

As we can see, we have a fairly balanced set of responses across the board. Most “Hell Yes” responses mentioned that the pack opening experience is fun and they believe in Top Shot’s long-term viability and success. The “Hell No” responses contained frustrations around being tricked, or Top Shot being unnecessarily greedy. Everyone is entitled to their own opinion, however the split down the middle indicates to me that Top Shot is moving in the right direction. Specifically, I believe there are two reasons why -EV packs are good for Top Shot. Let’s dive in.

Driving out “Rent Seekers”

In a world where all Top Shot packs are always +EV, the userbase is bound to become saturated with folks that have minimal interest in collecting Top Shot Moments, and instead are there for purely financial reasons - you’ll often hear these users referred to as “rent seekers”. I don’t know about you, but I’m not aware of many investment opportunities where you’re guaranteed a zero-risk opportunity that will likely net you a ~50% return in less than 24 hours; they’re simply not sustainable. We shouldn’t be surprised that the Top Shot userbase grew as fast as it did without spending a single dollar on advertising. So why are rent seekers bad?

First, rent seekers make it even more difficult for collectors to purchase a pack. Not only are you queueing up with fellow Top Shot collectors, but you’re also competing for a pack with Kevin from Finance who heard it’s a zero-risk investment. Secondly, when rent seekers land a pack, they immediately flip its contents on the marketplace, increasing supply without adding any corresponding demand. What does this do? It reduces prices in the marketplace.

Yes, Top Shot can implement intricate pack drop requirements, but these are essentially Band-Aids that struggle to avoid exploitation (we all remember the rush to qualify for the All-Star Game pack), while not alienating true collectors with shallower pockets. In a world where packs are always +EV, and rent seekers run rampant, making your investments in the marketplace is simply a losing battle - sharp money goes into packs, and nowhere else. But what about when packs are consistently -EV? Where does the money go?

Moving to the Marketplace

If sharp money in a +EV pack world goes into packs, and packs only, we need to recognize where this money will go in the future -EV pack world. The critical question we have to ask ourselves is: does this money shift to the marketplace, the only other alternative on Top Shot, or does it simply get up and leave? More likely than not, it will be a mixture. Some users will simply leave Top Shot once the zero-risk pack lotteries are removed, and that’s fine (see above). Some collectors will happily rip packs despite them being poor short-term investments. At the end of the day, humans aren’t robots, and last time I checked we still line up to play roulette despite the -EV being printed on the felt in front of us (PS: remind me to share the wildest Las Vegas roulette experience of my life). Lastly, and most importantly, we shouldn’t be surprised to see sharp Top Shot collectors moving their investments over to the marketplace. By definition, if packs are -EV, the fairest and most efficient prices for Moments shifts to the marketplace. Even if you believe in Top Shot’s long-term success, you’d be paying a slight premium for your Moments by acquiring them through packs in a -EV world.

I’m certainly excited by the idea of sharp money moving to the marketplace. The “game” becomes more intricate. In a +EV pack world, anyone could make smart investments: only buy packs. In a -EV pack future, it won’t be as simple as: buy Moments from the marketplace and watch them increase in value. Instead, it will be more important than ever to understand which players and Moments might be under and overvalued by the market over both short and long-term timeframes.

Lastly, if demand for packs subsides to a more sustainable amount, Top Shot can pump the brakes on the rate at which it’s minting Moments. Today, Top Shot releases hundreds of thousands of packs each week in order to meet the demand for +EV packs. Constantly minting more and more Moments has the side effect of decreasing the value of existing Moments and likely upsetting collectors. In a world where all packs are -EV, this cycle can slow down considerably.

What are your thoughts? Are you in favor of a -EV pack future? Feel free to give me a shout on Twitter.

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Disclaimer: None of the above constitutes professional and/or financial advice. All opinions expressed on Minted Moment are from the personal research and experience of author, and are intended for educational purposes only.