Saturday, April 14, 2018

"How we made $100K trading CryptoKitties"

Not us, we're HODLers, this guy:
Ivan Bogatyy Entrepreneur. Previously @GoogleResearch 2014–2018, @Stanford CS/SCPD, Moscow State U mathematics.

From HackerNoon, April 10:
By now everyone has heard of CryptoKitties, a cute game that went viral to the point of overloading the whole Ethereum network. This is the inside story behind how we made $107K investing in CryptoKitties and briefly set the record for the largest sale ever (currently second-largest). Later, we made ~$8K running an automated arbitrage bot. While playing the speculation game at the height of the mania was exciting, the bot was fairly technically involved and will be interesting to people who want to learn blockchain engineering in general.*nApf9UzfooT9L9B-.
Founder Cat #4, the main protagonist of the story.
As I was toying with my Ethereum smart contracts on a regular Saturday night (December 2), something was clearly off: transactions were stuck and took much longer than usual to confirm. A quick investigation showed there were 10–20 times more pending transactions than usual, and many of them were going to the same mysterious address, 0x06012..66d. This is how I first learned of the now-famous CryptoKitties game.
Investment thesis
Next morning I called Oleg, a close buddy who runs a top crypto hedge fund in Russia to discuss this unusual phenomenon. While the CryptoKitties game was merely a curiosity for me, Oleg immediately spotted a lucrative investment opportunity. First, we were clearly among the earlier entrants. Second, the game looked like it had all the precursors of going viral, similar to Pokemon Go, and was in the early stage of a hockey stick explosion.
Now the question was, which Kitties should we buy? The marketplace offered 4 ways to sort Kitties: cheapest first, most expensive first, newest first, oldest first (note: the website had been redesigned since). The first 3 options are clearly transient: you can always put a cheaper, more expensive, or a newer Kitty on the market. Oldest, however, is like diamonds: forever. Thus we decided to buy single-digit Founder Cats, despite their already hefty price tags: somebody just snatched them at 25 ETH and re-listed the lineup at 50 ETH ($25K), with Founder Cat #1 trading even higher at 150 ETH.
Oleg bought Founder Cats #4, #6, #8 at 50 ETH each ($25K at the time), and I put up $5K for a 20% equity stake in Founder Cat #4. We were pretty optimistic about the mania and re-listed the Kitties at 250 ETH, 5x the purchase price.
As a side-note, we wasted about an hour because of posting a low gasPrice, and had to reinstall MetaMask (at the time it did not have the “resend transaction with increased gasPrice” feature — it was added right after). Lesson learned: if you’re making a $25K purchase, do not try to save $20 on fees.
Right after hanging up on the call I considered the chances that this was going to be my personal record yet for the most ridiculous way to waste $5K. Probably pretty high.
The subtle art of exiting the top
Over the next days (December 2–5), the game entered the viral explosion phase. Given the addictiveness, it was pretty hard to focus on anything else. Clearly, the craze was not going to last: the game mechanics were way simpler than say Pokemon Go, with just two functions available, either buy or breed them to produce new ones. We assumed it could last for a couple weeks tops, so it was important to formulate a rational exit strategy in advance and stick to it. 
Google Trends for “cryptokitties”. The breakdown by country is very interesting as well.
We used three metrics. First, Google Trends for “CryptoKitties” showed how frequently people Googled information about the game, which is a pretty good leading indicator of interest. Second, GasGuzzlers shows the top gas-consuming smart contracts on the network and the share of gas they consume (for CryptoKitties it was ~4% when we entered and ~20% at peak popularity). Third, we watched the market conditions and the prices of recent sales on a very nicely built app,