Secrets of the Whitelist
Do you know all that's going on with whitelists?
If you haven’t been deeply involved in a project before, chances are that you haven’t ever had the chance to learn how the whole whitelisting process works.
We’re going share the secrets of the whitelist — the perspective you don’t see.
However, let’s first start on common ground and define what the whitelist is.
What is a whitelist?
A whitelist is a list of Ethereum addresses which get exclusive pre-sale access to buying a NFT.
It was initially introduced because ‘public minting’ — a process whereby any person (or Ethereum address) can buy a NFT — had an extremely poor user experience for any popular collection. It opens the door to people using algorithmic bots to instantly buy a significant amount of the collection and leaving very little for others. Additionally, in order to increase your likelihood of buying before the collection sells out, you’ll have to raise the gas you pay to the Ethereum network to prioritise your transaction ahead of others. As every other buyer also does this, it leads to all out “gas wars” which is a lot of wasted money.
In this way, a whitelist dramatically improves the buyer experience:
A guaranteed purchase — NFT is reserved for the buyer (within the time frame)
Time flexibility — Hours long window to buy which suits our busy lives
Reduced gas fees — As there is no “bidding war”, the gas fees are lower. Additionally, with the time flexibility, you can time your purchase when the Ethereum network is more inactive and thus further lowering your gas paid.
Additional perks — As project teams have innovated, there have been generally more perks offered to the whitelist such as discounted prices, a higher purchase limit, or special treatment amongst the community.
From the founder perspective, having a whitelist allows them to effectively pick and choose their initial community members and primary investor base. It’s literally like letting someone into your home — you wouldn’t let just any random person in. However, there’s a even bigger benefit to founders:
They are effectively able to print a new form of money to pay other stakeholders to help them supercharge their projects growth — creating a new type of economy.
Are whitelist spots a new form of money?
Now whitelist spots obviously aren’t the same as cash, but they can be used by project founders as payment for services which help them grow — making it very similar.
What services do founders typically “pay” for using whitelist spots?
Advertising — Social media influencers (across all platforms, not just Twitter) and existing NFT projects all accept whitelist spots in return for drawing attention to upcoming projects. This typically takes the form of a giveaway, which is what you see always blowing up on your Twitter feeds.
Art & Marketing Assets — Many discords have community challenges to create fan art or stickers for the project where the creators are compensated with a whitelist. These creators mirror independent art contractors.
Sales Team — The prize for winning ‘invite competitions’, a battle of who can invite the most people to a discord, is typically a whitelist spot. The participants collectively function of a sales team shilling the project.
Mod Team — Mod teams keep the order among the chaos that can erupt in discords. Compensation of the early Mod team typically involves whitelist spots from the project (and potentially also whitelist spots from other projects).
Now you must be wondering … all these valuable services would definitely need to be paid for in cash if it were Web2 — why are things different?
Why are whitelist spots so valuable?
Whitelist spots are valuable because they can potentially make a lot of money in a risk-free way. How?
If we dive into the financial payoff of a whitelist, it mimics a long call-option. I won’t dive into the specifics of options because it isn’t important. All that matters here are the potential economic outcomes of owning a whitelist:
If the NFT value post-mint is above mint price, you can “exercise” your whitelist and buy the NFT at mint price and make a gain.
If the NFT value post-mint is below mint price, you can avoid minting and purchase directly off secondary markets (granted you still want to).
So the whitelist potentially allows you to buy a NFT at a price far lower than what it is being traded at on secondary markets — unlimited upside with no downside.
This is why there are “NFT Whitelist Grinder” job listings on Upwork.
Now, options are typically traded on other financial assets — for example a company’s stock — whose underlying performance is largely of your control. Given the social nature of NFTs, people in general have a higher degree of influence in driving project performance. Because the value of a whitelist is directly correlated with how well a project performs, someone holding a whitelist prior to mint is already heavily incentivised to help the project succeed. They’re already invested.
As an aside, influencers in the NFT space love mentioning that they don’t do paid promotions (i.e. didn’t accept cash) but accept whitelists — is there really a difference? They are so incentivised to promote the project positively and have it succeed that the conflict of interest with providing unbiased information is even greater. —BaoBei
And thus, this is ultimately why people are so willing and eager to accept whitelist spots as a form of payment in exchange for services.
However, now you must also be thinking … the project founders don’t actually spend any money on handing out these whitelist spots (in fact, the whitelist recipient eventually pays the project!).
Where’s the catch?
Well, firstly, only the top projects actually have valuable whitelists — so not every single projects whitelist spot is accepted. (However, as the space is moving so quickly, people nowadays tend to accept the whitelist spots first and do research later).
Additionally, while there is no short-term monetary cost, there is actually a hidden long-term cost to the project if the whitelist spots aren’t handed to the right people.
Every NFT project founder faces this dilemma:
How do they get the most amount of people aware and excited about a project while still building a real and genuine community for the long term?
To answer the first part, it is typically advertising via partnership giveaways on Twitter — the best growth hack to date.
The problem is that every giveaway whitelist spot is more likely than not going to someone who doesn’t really want to be apart of the community at all. This reduces the amount of whitelists available for existing community members who have already made contributions in Discord.
Additionally, if this giveaway winner doesn’t plan on being apart of the community, chances are they will instantly sell the NFT on the secondary market. This is sell pressure that is going push down the floor price of the NFT, endangering the long-term survival of the project. This hidden risk doesn’t only apply to giveaway whitelist spots, but to all whitelist spots are given away by another stakeholder and not the team themselves.
So the best tool for NFT Projects to grow — whitelist spot giveaways on Twitter — is actually in opposition of genuine community building for the long term.
Therein-lies-the-rub
Doing a huge amount of “partnered whitelist giveaway” advertisements before launch will guarantee explosive project growth — but if founders pay with too much of their precious whitelist spots than the project may struggle post mint as those buyers flip and move on from your community.
You have to be very smart about it — and it ain’t easy.
Now there’s one exception to this: a team that doesn’t care about the long-term.
These projects only focus on the initial cash-grab, so they don’t care if people flip their NFT as long as they get paid. In fact, these projects also tend to over-allocate their whitelist spots such that they can guarantee a sell-out mint (i.e. if everyone on the whitelist wanted to mint, there isn’t enough NFTs — creating a smaller scale gas war). Overallocation is not uncommon, especially in the current bear market, but is definitely frowned upon.
Ultimately, this whole new whitelist economy is very unique and is very founder-friendly in terms of how it’s operating. As a buyer of NFTs, next time pay close attention to how a project team is building up their whitelist — as you can actually discover a lot about their true intentions.
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