Wrapped CryptoKitties, an asset-backed basket of cats

by Caleb Sheridan

CryptoKitties – an internet cat game –  finds itself as a showcase for innovative techniques in the blockchain space yet again. The collectible cats are among the world's first digital artworks with provable scarcity and ownership rights completely independent of their creators, Axiom Zen.

In 2017, a CryptoKitties craze caught mainstream media attention and slowed down the entire Ethereum network. Now there are over 1.6 million Kitties. Many of those Kitties are common and provide little utility for their owners. These Kitties are difficult to trade.

Wrapped Kitties, created by an independent developer, helps solve this. Unwanted, non-fungible, illiquid CryptoKitties can be traded for fungible WCK tokens (Wrapped CryptoKitties). These tokens are backed by the underlying Kitties and each token can be redeemed for any of the Kitties in the pool that backs the token.

What is the point?

WCK token holders can redeem one token for any Kitty in the pool.

  • Swapping one basic Kitty for another becomes a trivial task compared to negotiating a trade with another user.
  • Buying and selling Kitties in bulk is straightforward. There is an exchange for WCK tokens on Uniswap where traders buy and sell dozens of cat credits at once.
  • Redemption tokens can be offered to players at a lower cost than creating new Kitties.

Ok... Who cares?

Imagine that a different asset with more utility replaces Kitties. Evoking The Big Short, the token might be a CDO backed by loans and mortgages.

CryptoKitties is not the first project to have wrapped assets into a basket. However, this is one of the most tangible examples where a fungible asset is backed by a pool of illiquid, unique assets on the blockchain. And the basket is fully – and beautifully – transparent.

The Basket of Cats backing the WCK token

Whereas Dr Michael Burry had to find and dredge through Excel files to understand that the assets underlying CDOs where low quality, each and every Kitty backing the WCK token is publicly visible.

These are the unwanted Kitties backing WCK.

The Basket of Cats backing the WCK token

The basket of cats (5,933 Kitties as of writing) is held in an Ethereum smart contract.

  • The price of 1 WCK is currently 0.0019 ETH
  • The price of breeding a new Kitty is currently 0.0080 ETH (and comes with the chance of receiving a more desirable cat)

Real-world applications

Where digital cats provide a highly visual example of using a basket of assets to back a token, the example may be too far removed from real-world applications. These live blockchain projects help show some of the possibilities available today.

  • Neutral is a basket of stablecoins, designed to neutralize the risk of any one stablecoin imploding.
  • Sets allows users to bundle and rebalance underlying assets to meet the requirements of an investment strategy.
  • RealT offers tokenized ownership of income-producing real estate.
  • Maker and Compound offer tokenized ownership of income-producing, collateralized debt.
  • Uniswap offers tokenized ownership of income-producing exchanges.
  • UMA offers synthetic exposure to real-world assets, like stocks and bonds.

Custom Explorers

Public blockchains build transparency into products by default. But there is a divide between technically savvy users who can extract this information and other users who cannot easily benefit from the transparency.

Blocklytics helps enable transparency for all users by building custom blockchain explorers and reports. We aim to provide all users the opportunity to understand and explore the underlying details and activity on blockchain networks.

If we can help you bring transparency to your project, please email hello@blocklytics.org