Why we bought the Burning Helios (Aurory NFT) for $384k<br>

Why we bought the Burning Helios (Aurory NFT) for $384k

You can't take the same actions as everyone else and expect to outperform” - Howard Marks, Memo To Oaktree Clients dubbed “Dare To Be Great

Less than a year ago Delphi Digital purchased digital pets in Axie Infinity for $159k. The NFT market was in its early stages. And NFT gaming was mostly a “dream of the future”. The first massively successful play-to-earn (P2E) gaming model of Axie Infinity was yet to be born.

At this time buying the rarest NFTs in Axie Infinity was a bold move and Delphi Digital released a great article explaining their rationale behind the purchase.  

On Tuesday 7 September 2021 Sigil fund purchased the Burning Helios, the rarest NFT in Aurory project, for 2,400 SOL or $384k.

Wait… What is Aurory?

Aurory is a blockchain fantasy action RPG that will allow millions of players to combine video games and crypto in both a ludic and competitive way. It's being built on Solana - alternative and fast smart contract blockchain, which is taking crypto markets by storm (Sigil is long on SOL).

The gameplay will offer a highly engaging single player (PvE) experience where newcomers will learn about the crypto world through an educational journey, AND an exciting and rewarding multiplayer (PvP) where players will build a roster of epic NFTs to compete with the rest of the world. In both game modes, players will acquire and collect NFT and Tokens.

In short Aurory is:

  • NFT gaming project - pretty much the first mover on Solana. It combines beautiful art with captivating game design delivered by a skilful team of gaming veterans, with whom are in direct touch.

  • Gateway to DeFi and Crypto -  by playing Aurory retail users will learn how to collect NFTs, use their wallets and stake tokens. Staking tokens for APY and using financial products can be quite boring for retail users. BUT what if you can airdrop them a dragon as an NFT staking reward? Or open the PvP arena. Staking rewards become tangible and meaningful. Retail gets excited.

When you combine these two points together, you get a key to retail mass adoption of crypto.

The NFT opening is happening

“The Opening” in NFTs as The crypto gateway was already called by the legendary investor AVC in this excellent article. While blockchain brought a value settlement layer and DeFi laid out the financial infrastructure of Web3, We believe it will be the intersection of gaming, NFTs and social networking that will open up crypto and Web3 to mainstream users.

As we speak the “smart money” is positioning itself to capitalise on the coming tsunami of NFTs, NFT gaming projects, DAOs emerging around them and P2E business models.

Gaming industry is a fast growing segment in itself:

What happens when you combine the growing gaming segment with investing and trading, digital collectibles with liquid markets, proof of digital ownership with social status signaling, socially driven gaming ecosystems with play to earn models? Industry on fire!

But why would a crypto hedge fund buy a rare Burning Helios?

So we bought an expensive gaming item for a lot of money during the bullish NFT cycle. We are the greater fools now. Or are we?

Hear me out, anon. First of all - it is rare and beautiful. It visually differs from all the other Aurory characters. It is literally ON FIRE!

But most importantly, we believe that we made a fundamentally good trade (alpha) with this purchase, while also acting based on our micro and macro theses.

Let us explain the Micro thesis first.

10,000 unique Aurorians NFTs were minted last week. All were sold out in 3 seconds, while the Aurory webpage had 55k unique visitors and 350k requests:

All this data indicates to us that Aurory is peaking retail interest even before the game is released. This is quite a feat given it's a project with short history and built on outside of Ethereum.

Among other perks these 10,000 oldest Aurorians will allow you to unlock the early game access. With over 50,000 people already waiting at Discord and over 75,000 twitter followers as of writing, it does not take long to realise these characters will get extremely coveted even before the game release.

The early game access will open in Q4 this year. The floor price of Aurorians as you can check on Solanart is currently around 24 SOL. So the simplest investment thesis for cheap Aurorians could be exploiting the desire for early game access - you can buy these floor Aurorians for cheap in the coming 1-2 months and flip them for 2x - 6x when the game access gets announced.

Once the game is released your unique character will bring you more benefits (some details and most exciting perks are yet to be fleshed out but here is a little teaser). One of the coolest things about your Aurorian character is that it will eventually be displayed in the game and in the leaderboards. If you buy the rare skin like Skeleton or Zombie or otherwise good looking Aurorian, this will be a strong status signal (or using gaming lingo - flex).

Status signaling is a powerful concept. CryptoPunks total volume is over 478,300 ETH (USD 1.8b !!) right now. Most expensive punks are worth thousands of ETH (tens of millions USD). Even looking outside of the crypto world and into the world of mainstream gaming, we see similarly staggering numbers.

In Aurory there are 116 zombies, 20 skeletons and only 9x Helios. Wolf-like Helios character is also one of the top 2 characters in the Aurory lore.

Best way to learn about the rarity of 10,000 Aurorian NFT characters is to check the HowRare.is overview. It has some controversy in the rarity algorithm in our opinion. For example it values humans with certain hats and other accessories more than certain zombies and skeletons. The rarity of skins versus accessories makes for a thrilling subject to debate in the Aurory discord but we will not go this deep in this article.

It is enough to know that the “HowRare.is” tool is a great overview of 10,000 Aurorians and their rarity. You can filter Aurorians by their rarity rank, or if you believe that oldest mints have a “collectible premium”, you can order the Aurorians by the mint ID. You can apply filters with any rarity trait you wish.

If you filter by Rank, the top 10 characters are the 9 Helios cats (or wolves?) followed by the skeletons. You can also see the listed PRICE on Solanart. And importantly the LAST SALE price, if any. As you can see the Helios Rank 7 was sold for 2,000 SOL recently.

Does it matter which Helios? 

In this section we will explain the logic behind “rarity value investing” (Benjamin Graham would not approve). In essence - the aim of a smart collector/investor is to correctly value the collectible piece based on available data (statistical rarities, market prices and even “soft” aesthetics of some of the traits) and comparative analysis using prices and attributes of similar pieces.

Last week before the mint, the Aurory team announced that top 9 valuable characters will be Helios. So most of us believed these would be comparable in rarity values. BUT if you have a closer look, you realise that it is NOT 9 / 10,000 Helioses. It actually breaks down like this:

  • Rank 1 is  1 / 10,000 Burning Helios
  • Rank 3 is  1 / 10,000 Vampire Helios
  • Rank 4 is  1 / 10,000 Black Fur Helios
  • Rank 7 is  1 / 10,000 Helios Momie
  • and the remaining 5 Helioses are a normal Helios Cat skin 5/10,000

Huh. So how is it possible that Rank 2, 5 and 6 normal Helios Cats outranked the special skins? Well, there are actually 9 attributes:

The Rank 1 Burning Helios is composed of all unique 1/10,000 Burning Helios attributes. Its Skin, Cloth, Necklace, Eyes, Hair and Hat are all unique 1/10,000 Burning Helios traits. That´s unprecedented among other characters and is the reason why the Burning Helios hits the highest Score of 614,321 which is much higher than Rank 2:

As you can see the Helios rank 2 is sharing some attributes with other Helioses. For example there are 5 normal Helios Cat skins or Helios Black Overall Cloth is shared even among 7 Helioses. As a result the rank 2 scores only 428,614 points.

Let's finish our review by looking at the Rank 9 Helios:

As you can see this Helios is (sadly) missing a Hat and thus falls among 6,166 characters without a hat which is his biggest downfall compared to Rank 1 or Rank 2 Helios. Rank 9 Helios is also sharing its rarity attributes with other Helioses, making him less unique and the effective Rank 9. The score of 118,604 is 5x lower than Burning Helios Rank 1 and 4x less than Rank 2 Helios.

However, remember that “the worst Helios” is still the 9th best character among the whole set of 10,000 Aurorians. Just to put it in perspective, other characters are already trading for prices above SOL 1,000:

To conclude our micro thesis

  1. The Rank 1 Burning Helios is approximately 5x rarer than normal Helios cats because Burning Helios has all of its attribute traits unique 1 / 10,000 while normal Helios cats are sharing attributes among 3, 5 or 7 characters.
  1. There was a purchase of Helios Rank 7 for 2,000 SOL last sale which anchors the market value of normal Helios cats.
  1. This puts the implied valuation of Burning Helios Rank 1 at minimum 10,000 SOL if we consider the 2,000 SOL last sale of Helios 7 as a fair market level and apply a simple "5x rarer" logic.
  1. Vampire Helios Rank 3 is 1/10,000 skin and looks undervalued with its current listing for 2,000 SOL. (Congrats for getting it to our hidden alpha giveaway).

Let us add a few points from our Macro thesis

  1. We are early in the boom of NFT gaming. The first grails (extremely rare and desirable pieces) are just being created.

  2. NFT gaming and collectibles enabled by blockchains (securing our digital ownership in what buzzword lovers call Metaverse) is going to be one of the biggest and fastest growing retail industries in the world in the next two decades, as our entertainment, social lives and even our personal brands and identities are taking more digital form.
  1. Aurory has been delivering impressively with their art, content and community building. We are overall very bullish on this project and expect a lot of value to be created in the coming months.
  1. There is an empirical collectible / art valuation methodology which shows that the rarest collectibles / art of a certain class accrue exponentially more value than the median pieces. While the downside risk of every NFT collectible is near 100% (given the obvious risk of that particular series of collectible or game won't end up being popular), the rarest grails offer much higher upside (and ability for bigger position sizing) than common “floor price” collectibles. On the other hand, floor price collectibles are more liquid and easier to adjust positionally.
  1. Solana is one of the fastest growing crypto ecosystems. Sigil Core fund bought a reasonably sized bag of SOL in December 2020 for $1.20 and continues to believe in Solana success for the days to come.
  1. Large crypto institutions are currently setting up dedicated NFT funds. Their buying power will provide further tail winds for the NFT markets. Even if the NFT market was to see a large correction at some point (as we have seen with DeFi several times) we are quite confident it would be only a temporary blip on the chart. The NFT markets and especially NFT gaming markets are poised to grow by orders of magnitude higher in the coming years.

What's next?

Right now we are quite delighted with our great purchase of the Rank 1 Burning Helios. Considering the unique rarities explained in the micro thesis the 2,400 SOL purchase was a big value snipe.

We believe that the secular growing trends explained in the Macro section will push the value of all Aurorians much higher over time. We are confident that the no. 1 rarest character in Aurory in the first grail game on Solana will be highly coveted for the large NFT buyers going forward and its value will age exponentially.

We are avid gamers and we plan to play Aurory, as well as invite our friends to play with us. We believe that only by being directly involved in the newly emerging gaming ecosystems can give us enough edge and understanding to keep generating outsized asymmetric returns.

However, we also understand that while we generated a solid “alpha” value bet with regards to rarity/price ratio, the success of this position is still entirely dependent on the success of Aurory to attract gamers and capture attention of collectors within and outside of crypto. Thus, we cannot treat such a NFT bet as liquid investment but rather as a highly asymmetric bet that we must be ready to write off, like we would do with failed illiquid venture bets.

Sigil Core holds positions in other NFTs as well, but the overall size doesn't exceed single digit %, as per our illiquidity boundaries. Most of our portfolio is still allocated liquid, productive crypto assets. But mandate to our investors is and always was to provide balanced exposure across the overall crypto ecosystem with asymmetric upside potential and NFT collectibles and games are, at this point, a big and fast growing part of the crypto ecosystem. Truly balanced and upside maximizing portfolio should contain not only NFT and gaming infrastructure bets, but also select NFTs. At the risk of being publicly wrong in a pretty entertaining way, we dare to be great.

Disclaimer: The information provided in this article does not constitute investment advice, financial advice, trading advice, or any other sort of advice and you should not treat any of the website's content as such. Do conduct your own due diligence and consult your financial advisor before making any investment decisions.

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