Welcome back to my series on sILV, the synthetic ILV “gift card” to Illuvium. In , we focused on the basics of the tokens and looked at my analysis of the sILV-to-SLP strategy. Today, we’ll look at a few other ways to consider playing the sILV token.
How else can I think about sILV?
If we’re not doing the sILV-to-SLP strategy, how else can we take advantage of the sILV liquidity? The next two ideas that I’ll share are related, but with a different risk level and potential value. Both involve the fact that sILV currently trades at about 40% of its face value on the Uniswap pool. Remember, sILV is pegged to the value of ILV in transactions with the DAO, but due to the more limited utility, on the open market it sells for significantly less. Both strategies also involve the upcoming Illuvium land auction, likely to happen in early November at the earliest.
The land auction is the first major use case for sILV. It has been shared that sILV can be used to purchase land, though ETH will remain the primary currency of the Illuvium economy. A critical note - it is believed that mixed transactions will be possible, meaning the entire land purchase will need to occur with either sILV or ETH, but likely not a mix of both. This means if you plan to purchase land with sILV, ensure you have enough to cover the entire cost.
Deraji’s Predictions
Here’s what I think will happen. We’ve seen an increasing amount of sILV claimed in the past weeks, with more than 100k tokens remaining unclaimed, meaning the amount of sILV can increase significantly before the auction. At today’s ILV prices, that means there is already over $20 million in available “gift cards” to buy land.
From a psychological perspective, we have two different phenomena with these sILV. First, some people have claimed sILV as their staking rewards with the intent to buy land. This has the potential to be perceived as “free” money, making someone more willing to spend frivolously, raising the price level they would be willing to pay for land if they needed to use ETH or cash.
Secondly, since sILV is available for 40% of face value on Uniswap, a number of people will buy up this supply, essentially doubling their value for the auction at current prices. As long as there is sILV available at ANY discount on the open market, it does not make any sense to buy land with ETH as long as sufficient sILV is available for that purchase. Thinking of sILV as a gift card, it’s like getting $25 for only $20. Presuming someone has a budget of $5000 for land, they have the opportunity to buy sILV now, essentially providing them with $12000 to buy land, while feeling like they are only spending $5000.
The impact of both of these psychologies is that the first land auction may actually be inflated in cost relative to future auctions. This will be a balance of publicity, as the first auction is likely to be the least known of the five proposed sales, but presuming prices are sufficiently high to consume all available sILV, the prices will be psychologically higher for the two reasons given above. This essentially levels the playing field for everyone involved with the exception of those using ETH, who will pay a higher price for land than if sILV didn’t exist.
The other implication of potentially tens of millions of dollars of sILV being used for the auction will be a significant reduction in the amount of revenue distribution generated. Revenue distribution is the concept described , that all revenue received by the DAO will be distributed to eligible staked tokens. Rather than generating revenue, sILV is burned upon use. As we have no real values for land yet, which will be sold by Dutch auction, all predictions are speculation, which I prefer not to do. However, if the first auction is dominated by sILV, essentially no revenue distribution will result. In the long term, the use of sILV will benefit long term stakers as each sILV claimed eliminates an ILV from ever being created, reducing the pool of eligible tokens and increasing revenue distributed per token over time.
Option 1: Flip sILV in a month
Given my predictions above, this also means demand for sILV will increase significantly leading up to the auction. Therefore, it is likely that the current discount of sILV will be eliminated at the time of the auction. Presuming you believe the price of ILV will remain at or above its current levels, this means there is an opportunity to potentially more than double your money in a little over a month. sILV purchased today for $250 may be able to be sold for much close to the price of ILV at the time of the auction. While still highly speculative, it stands to reason that this is the lowest risk short term investment, though upside is limited as sILV should never go above the value of ILV, as at that point, it becomes less expensive to use ETH for the land purchase.
Option 2: Buy “cheap” land
The second option is more speculative, and relies on the idea that Illuvium land will be more valuable over time. There is the opportunity to buy sILV today at a discount, be optimistic that the ILV price will continue to rise leading up to the hype of the auction, and apply the psychology of doubling your money, enabling you to buy more or higher tier land at the auction. Exact details are not yet known on the market for the resources that land generates, but it is known that land will have utility connecting Illuvium Zero game play to the primary Illuvium title to generate various types of fuel, and selling into a Balancer type pool, receiving ETH in return. Land, like other NFTs, may appreciate in value over time, further enhancing your return beyond that of holding or selling sILV alone. This is a much more speculative play and likely will be a longer term venture.
It should be noted that while the first auction will likely happen in November coinciding with the release of the Illuvium Zero mobile game, this will be version 1 of the game, and a complete wipe/reset will happen aligned with the launch of the primary title, known as version 2 for the mini-game. Only at that point will land owners be able to sell resources generated for ETH. Only blueprints generated during version 1 will be retained after the wipe.
Option 3: Buy “cheap” gift cards
The final way to think about sILV is the original intended use, in-game credit for Illuvium. While we are still at least three months away from the debut of the main Illuvium title, presuming you believe again that ILV will increase in price, it is possible to fund your future in-game purchases at a discount today by buying sILV and holding until the release. These sILV can fund your immediate purchases for in-game travel and curing of shards, which is the mechanism of collecting NFTs. Likely the longest term investment, if you are already excited about playing and the opportunity to generate value from collecting or flipping NFTs on a more limited budget, you can potentially dedicate your gaming budget now to amplify it later. This does presume that the price of ILV will remain at or above the current price of sILV, and is a commitment of money missing out on other investment opportunities tying up those funds until the game is launched, the date of which is believed to be “Q1 2022.”
That’s my perspective on the different ways to leverage the sILV token, both in claiming and purchasing the Illuvium gift card. None of this is investment advice and please consider your own financial situation, conducting your own research prior to investing.
Thanks as always for reading, and consider supporting my work
