In-Depth Analysis of FWA: An Interesting Experiment Turning NFTs into "On-Chain Gacha"

If you have an idle NFT, what would you do with it? List it on a trading market and wait? Or simply leave it in your wallet to gather dust?

Recently, a new project called Fake World Assets (FWA) has emerged on the Ethereum mainnet. Developed by the TokenWorks team, its official website is fwa.fun. In simple terms, this project has created a fully on-chain "NFT gacha machine." Anyone can put their NFTs into the gacha machine as prizes, and others can spend a uniform price to draw lots.

It cleverly combines the concept of liquidity provision from Uniswap, the thrill of blind box lotteries, and token economics. Today, let's break down this project in plain language and see how it works.

1. Key Terms Involved

Before diving into the mechanics, let's align on some jargon so that it’s easier to follow later.

Position: In FWA, you cannot just throw an NFT into the gacha machine. You must put in an NFT along with a certain amount of ETH; these two together constitute a complete "position."

Backing: This is the ETH you allocate to the NFT. It serves as your principal and determines the probability of your NFT being drawn.

Standing Bid: The backing you put in is essentially a "buyback price" you set for the NFT. If someone draws your NFT but doesn’t want it, they can sell it back to you directly and take most of your backing.

Acquisition Price: The uniform price that a lottery participant must pay to draw once. This price is calculated in real-time by the system based on the status of all positions in the pool.

Crown: The position with the highest backing in the pool wears a "crown" and can take a portion of the lottery fees.

2. Core Mechanism: How Does the Gacha Machine Work?

Depositors lock their NFTs along with a chosen amount of ETH into the protocol, forming a position. This ETH is called Backing, and it serves three key functions:

1. Determines the Probability of Being Drawn (Selection Weight): The weight is inversely proportional to the backing. The higher the backing, the lower the probability of being drawn, making the position safer and longer-lasting; the lower the backing, the easier it is to be drawn.

2. Acts as Standing Bid: The backing is fully locked to support the buyback promise made by the depositor to the lottery participants.

3. As Depositor's Principal: Standing Bid and Backing are closely related but different concepts: Backing is the actual locked ETH principal, while Standing Bid is the "buyback at any time" quote made with this principal. By default, when a lottery participant accepts the Standing Bid, they can take 85% of the backing (in ETH or converted to $FWA), with about 15% as a settlement discount, which defaults to the protocol. Randomness is provided by Chainlink VRF, and requests are settled strictly in the order submitted to prevent front-running or manipulation.

Positions in the pool are roughly categorized by rarity into Common, Uncommon, Rare, Epic, and Legendary, corresponding to different levels of backing.

3. Two Core Roles and Gameplay

1. Depositor - The "Banker" Providing Liquidity

Deposit NFTs from the whitelist (currently supporting dozens of collections including CryptoPunks, BAYC, Azuki, Milady, Pudgy Penguins, Ten Thousand Tokens, etc., with more being added) + any amount of ETH as Backing (with a minimum threshold). Sources of income:

• Each time someone draws, the fees are divided equally among the active positions after deducting the protocol's cut and the crown's share (each position receives the same amount, regardless of backing size).
• The holder of the "crown" with the highest backing receives an additional small portion of each fee.
• $FWA token rewards (initially distributed according to √Backing weight).
• Can withdraw at any time (as long as the position has not been drawn and is waiting for the current queued requests to settle or expire).

If drawn: The lottery participant keeps the NFT → The depositor gets back almost all of the backing (after deducting about 1% protocol settlement fee) and loses the NFT.
If sold back: The depositor retrieves the NFT but loses most of the backing.

2. Purchaser/Lottery Participant - The "Player" Randomly Obtaining NFTs

Pay the uniform acquisition price calculated in real-time by the system (the expected value of the pool, which is the harmonic mean of all backings + about 10% additional fee + a small VRF service fee). At the same time, everyone pays the same price, with slippage protection available. After successful payment, a random position is guaranteed (the probability of low backing is much higher than that of high backing). After being drawn, they must choose one of two options (within a time-limited window):

• Keep the NFT.
• Accept the Standing Bid and take 85% of the backing (in ETH or $FWA), returning the NFT to the original owner.
  They can also receive $FWA rewards (initially distributed according to the number of successful draws that day).

This design makes low backing positions "common goods," keeping the lottery price cheap and the participation threshold low; high backing positions become rare "jackpots," attracting players seeking high odds.

4. $FWA Token Economic Model

$FWA is a fixed-supply incentive token, primarily aimed at kickstarting a bilateral market and converting protocol activity into token value.

Initial distribution: 50%: Injected into Uniswap v4 FWA/ETH liquidity pool. 30%: Early distribution over 15 days (2% of total daily supply, with depositors and purchasers each receiving 1%). 20%: v1 snapshot airdrop (claimed via Merkle proof based on specific block snapshots).

Early external purchases are closed, and tokens can only be obtained through participation in the protocol, while selling remains open. This reduces early sell pressure. Value support and appreciation logic:
When a lottery participant chooses "sell back and settle in $FWA," the system will directly buy $FWA on the market using 85% of the backing ETH.

This is sent to users, forming real, sustained buying pressure (especially stronger when drawing high backing positions).

Protocol fees can be configured for $FWA buybacks (currently defaulted to off), with 40% of buybacks returning to depositors, 40% to purchasers, and 20% being burned.

The higher the protocol activity, the stronger the fees and settlement buying pressure, making deflation and demand more apparent. Token transfers are restricted, primarily through official pool trading, with a 1% transaction fee.

5. Sources of Income

1. A 1% cut from the acquisition fee of each lottery draw is taken from the acquisition price paid by users. The actual price paid by users remains unchanged; this 1% is taken from the additional fee portion.

2. A settlement cut (1% of the backing) occurs only when the lottery participant chooses to keep the NFT, deducted from the backing returned to the depositor. No fee is incurred when selling back.

3. A settlement discount (15% of the backing) when selling back defaults to the protocol. In the future, this may switch to being distributed to all depositors.

4. $FWA token trading fees (1% for buying and selling) go directly into a dedicated fee wallet, separate from the above Splitter distribution.

6. Note:

The acquisition price paid by users = pool expected value (EV, harmonic mean) + 10% additional fee + VRF service fee.

Taking the example of a user paying 0.1 ETH for the pool acquisition fee, the complete sequence is as follows (ignoring the VRF service fee):

1. First, split the structure EV (expected value) ≈ 0.0909 ETH 10% additional fee ≈ 0.0091 ETH Total 0.1 ETH

2. The protocol first takes a 1% protocol cut = 0.1 × 1% = 0.001 ETH (deducted from the additional fee)

At this point: EV part is still about 0.0909 ETH, remaining additional fee is about 0.0081 ETH, total distributable amount ≈ 0.099 ETH

3. Then, from the distributable fees, take the crown 5% crown reward ≈ 0.099 × 5% ≈ 0.00495 ETH (for the highest backing holder) The crown is cut from the entire distributable fees, so it will simultaneously affect both the EV part and the additional fee part.

The final distribution of the remaining part (key point) after deducting the protocol and crown: The portion belonging to EV (main part, about 0.09) is evenly distributed to all active depositors, unaffected by hot or cold.
The portion belonging to the additional fee (about 0.008) has a hot and cold distinction: Hot pool → More/all to depositors (continue to evenly distribute) Cold pool → More/all becomes $FWA for successful lottery participants.

Current Splitter distribution

7. Several Important Designs

1. A clever combination of inverse weighting + evenly distributed fees. The higher the backing → the lower the probability of being drawn → the longer it survives → the more fees it can receive. However, each fee is evenly divided by the number of positions, regardless of backing size. The result is: small depositors are motivated to continuously provide "cheap goods," while large depositors gain higher total returns by "surviving longer." Both sides have reasons to participate.

2. Pricing based on harmonic mean.

The lottery price is determined by the harmonic mean of all positions' backings. The harmonic mean is strongly pulled down by the lowest backings, so even if there are super high-value jackpots in the pool, the overall lottery price can still remain cheap. This allows for both "low-price high-frequency lotteries" and "high-value rare jackpots" to coexist without conflict.

3. Dynamic distribution of remaining additional fees based on hot and cold.

The remaining additional fees are not fixed to one party but slide based on pool activity: Hot pool → More to depositors (encouraging continued liquidity provision) Cold pool → More to lottery participants buying $FWA (stimulating demand, cold start). This allows the protocol to automatically adjust supply and demand without manual intervention.

4. Standing Bid.

The mechanism locks the backing deposited by the depositor into an irrevocable buyback quote. After being drawn, the lottery participant can choose one of two options: keep the NFT, or directly take 85% of the backing (which can also be converted to $FWA). This protects the depositor's asset security (backing is always sufficient) while providing the lottery participant with an "exit" for loss mitigation/cash-out, simultaneously creating real buying pressure for $FWA. This design significantly lowers the psychological barrier for user participation.

5. Mandatory buying pressure for settlement in $FWA.

When a lottery participant chooses to sell back and settle in $FWA, the system will directly buy $FWA on the market using 85% of the backing ETH. This partially converts the principal that originally belonged to the depositor into real demand for the token, forming a direct link between protocol activity and token price.

6. Asymmetric buying and selling (also known as the community's "anti-pixiu").

In the early stages, only selling is allowed, not buying. This way, the only people who can obtain $FWA are two types: either snapshot airdrops for old users or those who genuinely participate in the protocol—depositors who store NFTs and lottery participants who successfully draw. The benefit of this design is that the early circulation of tokens flows primarily to real participants rather than external speculative funds, giving the protocol ample time for a cold start. An extremely interesting project.

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