The founder cat №4, the main character of this story.
Probably, everyone has already heard about the sweet CryptoKitties game, the sudden popularity of which led to the overload of the entire Ethereum network. We will tell our insider story about how we earned 107 thousand dollars by investing in these digital kittens, and made a record-breaking deal to sell them (at the time of preparing the article, it is considered the second largest in the project’s history). Games of speculation in the wake of the general rush were fascinating, but the development of an arbitration bot, which later brought us another 8,000, turned out to be quite a difficult task from a technical point of view, and the story about it may be interesting to those who are interested in blockchain development in general.
Once on a Saturday evening (namely, December 2 last year), playing with my smart contracts in Ethereum, I noticed some problems: transactions were stalled, and their confirmation took an unusually long time. I quickly found out that the number of operations in standby mode turned out to be 10-20 times more than usual, and many transfers were made to the same mysterious address, 0x06012..66d. That’s how I first learned about the acclaimed game CryptoKitties.
Investment opportunity
The next morning I called my close friend Oleg Ostroumov, the head of the Russian cryptocurrency hedge fund, to discuss this unusual phenomenon. My game just aroused curiosity, but Oleg immediately saw in it a good opportunity for investment. First, we were clearly one of the pioneers; secondly, CryptoKitties had every chance of becoming the second Pokemon Go, and thirdly, the project was clearly at the very beginning of a period of sharp growth.
The question was exactly which kittens should have been bought. They could be sorted by four criteria: ascending or descending prices, as well as by a later or earlier creation date (the structure of the site has changed since then). The first three options were obviously temporary: a cheaper, expensive or new kitten can always be put up for sale, but the very first ones, just like diamonds, will remain so forever. We decided to buy cats from the top ten, although the prices for them were already very impressive: at that time someone had just bought them for 25 ETH and put up for sale already for 50 ETH. The founder cat №1 cost even more: they asked for it 150 ETH.
Oleg bought the founding cats numbered 4, 6 and 8. Each of them cost him 50 ETH ($ 25,000), and I bought him a twenty percent share of the founding cat No. 4 for $ 5,000. We were filled with optimism and put the kittens for sale for 250 ETH, raising the price five times.
I note that we spent about an hour on this, as we set the gas price too low (Gas Price) and had to reinstall the MetaMask plugin, which at that time did not have the function of re-making transfers from the increased Gas Price. We learned the lesson: making a deal for 25 thousand dollars, you should not try to save twenty on the commission.
Having finished with this, I thought that with high probability I had just set my own record, having spent 5 thousand dollars in the most idiotic way possible.
Subtle art of timely exit from the game
In the following days, from December 2 to 5, the game entered a phase of explosive growth. Focusing on something else was very difficult. Such a madness obviously could not last long: the mechanics of the game were much simpler than those of the Pokemon Go, and meant only two functions – buying or breeding kittens. We assumed that this whole story would last no longer than a couple of weeks, so we had to think in advance about a sensible exit strategy and stick to it.
The popularity statistics of the cryptokitties query on Google Trends. The breakdown by country also looks very interesting.
To do this, we used three indicators. The first of these, Google Trends stats for “cryptokitties”, helped determine the level of popularity of a game based on how often people search for information about it. The second tool was the data of the GasGuzzlers service, which showed which smart contracts consume the most gas and in what volumes. When we entered the game, for CryptoKitties, this figure was 4%, and at the peak of the game’s popularity it reached 20%. The third way to track market conditions and the amount of recent transactions was a very convenient application https://kittysales.herokuapp.com/.
On December 4 and 5, less prestigious kittens numbered 35, 78 and 87 were sold for almost 200 ETH, so we were sure of the correctness of its price. Despite this, on December 5 and 6, each of the above indicators reached a maximum, and by the evening of December 6, the level of popularity rushed down. Noticing this dynamic, we immediately phoned and tried to decide what to do with the kittens: none of them has not sold yet. I offered to reduce the price to 100 ETH, but Oleg insisted on the originally set figure of 250 ETH. Taking into account our differences, arbitration became an obvious way out: I sold my 20% to Oleg on the basis of an estimated value of 100 ETH, and thereby doubled my investments. I did not know that the excitement of a successful transaction would be shattered after only 20 minutes.
Founding cats No. 18 and No. 4 lead in the kittysales.herokuapp.com rating
Out of curiosity, I continued to monitor the market. 20 minutes after Oleg bought out my share, I saw our No. 4 founding cat sold for 250 ETH. I was sure that this was the work of Oleg, so I didn’t even bother to ask him this question. When I finally got an answer to it, I fully appreciated the strength of the asset retention strategy: the deal turned out to be real. We did not know who the buyer was, but he had just set a world record for the cost of buying a collectible on the blockchain.
Statistics of the most popular Ethereum contracts in GasGuzzlers. The current share of 0.92% is only an echo of the past 25%.
Automatic arbitration
After such a successful start, we thought about other possibilities that the game concealed in itself. The peak of HYIP has clearly passed, and the prices for the rarest specimens were unattainable. However, people still wanted to play and buy cats, so we decided to try an automatic bot to arbitrate cheaper kittens. Our resale strategy, like any other, involved three simple steps:
• Identification of a group of kittens with approximately the same price. We focused on such parameters as Rarity, Cooldown and Generation (only kittens of zero and first generations were worth enough for the game). Kittens with the same values of the above parameters were considered equivalent. The pet’s attractive appearance and various “cattributes” were not taken into account;
• purchase of undervalued lots in each group. We bought the cheapest kittens that meet each of the given parameters;
• Resale of purchased lots at a higher price. We wanted to avoid competing with other potential resellers in the race for the lowest price, so we put each kitten at a price slightly lower than the next one at cost, acting on the principle of a second-price auction from Google.
After analyzing several blockchain libraries, we came to the conclusion that the Bancor code for frontranning best meets our goals. The strategy was to track orders for the sale of kittens and their immediate redemption in case of meeting the specified criteria. The immediate response mechanism in many ways resembles frontranning the other way around: the user cannot place a purchase order before the kittens are put up for sale. From a technical point of view, this task could be solved in several ways:
• try to buy a kitten in the same block when it detects a transaction that requires confirmation. In this case, you can start a transaction for a purchase with a lower reward (for example, 24,999 GWEI against the stipulated 25) or leave it unchanged. In the first case, there is a risk not to get into the current block, and then the transaction may hang for several hours, and in the second, the miners may place your buy order in front of the order to sell the kitten, and then the transaction will fail;
• wait for confirmation of the lot and immediately redeem it, setting a very high reward, thereby guaranteeing confirmation of the transaction in the next block.
You don’t expect much competition from a cute toy, but, strangely enough, we had rivals who, in their attempts to buy out kittens, resorted to all these methods. Each method has its advantages, so we used all the available strategies to maximize our chances. This can be done either by trivially launching three versions from three accounts, or by reusing nonce in the same account. However, a more detailed description of technical subtleties does not fit into the scope of this article.
Another option we looked at looked like this: let’s say you want to buy a cat, and its value, in accordance with the terms of the auction, is gradually decreasing. Instead of buying the cat immediately, you wait for the appearance of another bidder, and then resort to using frontranning to ensure the lowest possible price. It would be fun to play the cunning gray cardinal a little longer, but the market collapsed too fast to waste time in this way.
Results
It has been more than a month and the hype around the cryptochosis lay down, when suddenly we received an unexpected pleasant surprise: someone bought our cat number 6. Its cost at 29 ETH was lower than the original price at which we bought it, but still it was good money, moreover, Ethereum then doubled in price.
The remaining Kitten No. 8 received Oleg’s undivided attention and love, as well as portraits on T-shirts, stickers on a laptop and even a silver pin. I heard that the cat will soon have its own Instagram channel.
We got a good practical lesson on speculation. My result can be called an undershoot, and Oleg’s result – an overflight, but be that as it may, we both doubled our investments, and this result can be quite terrific. Yes, imaginary cats have absolutely no real value, but this did not prevent us from playing this game and even winning. Of course, it is impossible to predict the peak of recovery, although we have defined it quite accurately.
As for the 5 thousand dollars earned through this adventure, I transferred them to the summer camp of the Moscow Center for Continuing Mathematical Education, which I myself attended in high school, and to the Press Freedom Foundation. Thanks to the generosity of Google and their >Match Program, I was able to double my investment here.
Source: chby.io
