Web3 for TradBiz — Use cases and value propositions (9 of 14)
Non-fungible tokens (NFTs) and the Metaverse
Cryptoassets representing ownership of scarce and unique items are evolving into more than just “overpriced jpegs”
Apple founder Steve Jobs once reflected, after the launch of the iPad, that “Technology alone is not enough. It’s technology married with the liberal arts, married with the humanities, that yields the results that makes our hearts sing.”¹ While he was referring to Apple’s DNA after the launch of the iPad, he could well have been talking about non-fungible tokens, better known as NFTs. Supported by a wide variety of use cases, NFTs are already impacting creative industries, creating billions of U.S. dollars in market value, innovating new forms of utility, attracting well-known brands, and launching innovative marketplaces. NFTs are joined by social tokens that connect content creators, influencers, fans, and communities of people together. These Web3 use cases are key enablers of the emerging Metaverse, the time in the near future when our digital lives become relatively more important than our physical ones.
NFTs are already making a dramatic impact on creative industries. What exactly are NFTs? Non-fungible tokens are cryptoassets that represent immutable ownership of scarce and unique digital or physical items. Because NFTs are registered on public blockchains like Ethereum, they provide proof of authenticity, cannot be duplicated, replaced, or substituted, but are still easily transferrable from owner to owner. Contrary to critics claiming that NFTs are simply “overpriced jpegs” that anyone can right-click and save onto their personal device, the NFT market is sizable and growing. Analytics firm NFTGo estimated the total NFT market to be worth approximately US$ 25 billion in July 2022, tracking more than 3,000 collections and 30 million individual NFTs.² While most NFTs have minimal value, notable collections and artwork examples have traded in the millions of dollars. For example, the NFT artwork Everdays: The First 5000 Days, a collage from the digital artist known as Beeple, was sold by Christie’s auction house for US$ 69 million in March 2021.³
A dizzying number of use cases for NFT are emerging. Pictures for profiles (PFPs) are the largest group of NFTs as measured by market value. Next come collectibles, utility, land, game, and art NFTs. These are joined by an increasing number of other use cases. Many NFTs are often developed and grouped together as unique collections of digital assets, ranging in size from a few dozen to 10,000 or more items.
PFPs are often avatars that are algorithmically generated, including headshots of cartoon characters or people, that are designed to be used as a profile picture in social platforms like Twitter. Collectibles are digital works created with the intent of being collected. Utility NFTs include a wide variety of utility outside of gaming or artistic applications, such as real estate, insurance, and nominative tickets. Virtual land NFTs represent properties or building within a Metaverse such as Decentraland or The Sandbox. Game NFTs are assets that can be used to play online games, and include characters, weapons, accessories, and skins. Art includes both manual creations as well as generative art collections that have been minted and sold as NFTs. Metaverse assets relate to shared virtual environments that people can access through a computer, VR headset, or smartphone. IP NFTs are intellectual property issued by some brands and celebrities. Social NFTs are issued by social media personalities who create digital collections linked to their personal brands. Sports NFTs are often collectibles relating to specific sports and teams. Music NFTs cover a broad range of use cases including playable music files, concert tickets, album artwork, and premium fan experiences. Domain name NFTs are web extensions (like .eth) introduced on public blockchains as smart contracts that turn hexadecimal wallet addresses into human-readable names and enable censorship-resistant websites. DeFi NFTs include any type of NFT that incorporates decentralized finance functionality. Photography NFTs are photos minted as NFTs, where creators often retain copyrights and share revenue each time an NFT is sold.⁴
PFPs are currently the most popular NFTs. If you’re familiar with NFTs, then chances are you’ve heard about top profile picture collections like CryptoPunks and Bored Ape Yacht Club. CryptoPunks launched as a set of 10,000 unique, low resolution, pixelated avatar heads in 2017, and helped pave the way for the ERC-721 standard that defines today’s NFTs. Distributed originally for free to OG crypto users, the floor price for individual CryptoPunks was approximately 80 ETH in July 2022, while CryptoPunks with rare characteristics have sold for much more. Bored Ape Yacht Club is a collection of 10,000 unique Bored Ape NFTs launched in April 2021 that also doubles as a Yacht Club membership card, granting access to online and real-world, members-only benefits. With a July 2022 floor price of approximately 95 ETH, Bored Ape NFTs have become a status symbol, with owners including well-known personalities like Tom Brady, Madonna, Justin Bieber, Jimmy Fallon, Paris Hilton, Snoop Dog, Mark Cuban, Shaquille O’Neal, and Eminem.⁵ Art Blocks is a platform where users can select their type of art from a curated collection of digital artists, with an algorithm randomly creating content based on their preferences. Otherdeed by BAYC founders and Sandbox NFTs are Land NFTs that allow users to own real estate in their respective virtual worlds where they can create and host experiences or showcase their other digital assets for themselves and other users. Note that NFT collections tend to be hit-driven, with many projects shifting out of the top 10 as attitudes and their popularity rises and falls.
Some NFT collections are adding utility to art. NFTs have the potential to be far more than images registered on a blockchain. While we are still in the early days of NFT market evolution, many projects are exploring granting their owners with privileges, rights, or rewards that are unlocked by the NFTs they own. For example, Bored Ape Yacht Club NFTs provide access to exclusive parties and other events, offer rewards in the form of being able to mint new NFTs, and more recently gain a share of the associated fungible Ape Coin token.⁶ Moonbirds give users rewards, private club memberships, and access to Discord, Metaverse and IRL events, depending on how long they are locked, or nested.⁷ Gary Vaynerchuck’s VeeFriends provide holders with tickets to the VeeCon conference. World of Women, a project focused on educating women and increasing female participation in Web3, provide holders with ownership of the artwork underlying each NFT and invitations to real-life events.⁸ CryptoBaristas are PFPs that give owners access to exclusive discounts at future café locations, online coffee beans shop and merchandise shop. Proceeds from NFT sales are also used to help its partner farm in Honduras improve its coffee production and post-harvesting processing methods.⁹
Well-known brands have entered the NFT space. The rise in NFT popularity has not been missed by consumer-focused companies, with many well-known brands across different industries dipping their toes into the NFT category. For example, Adidas partnered with Bored Apes Yacht Club and others to launch NFTs that provide exclusive access to physical and digital products as part of the company’s Into the Metaverse campaign. Competitor Nike acquired RTFKT, a well-known NFT studio, as its own response to venture into the Metaverse. Samsung introduced a television based NFT explorer and market aggregator, and created its own virtual world, 837X, in Decentraland, where users can win exclusive NFTs. McDonald’s raffled 10 McRib NFTs to commemorate the 40th anniversary of the popular product. Lamborghini created 360 Lamborghini Aventador NFTs as part of its space-themed collection. The National Basketball Association, in collaboration with Dapper Labs, launched an NFT-based trading card system called NBA Top Shot. Verizon launched a Valentine’s Day campaign with NFTs based on the worst gifts customers had received on that day. And while not a consumer brand, the government of Ukraine organized a campaign to fund their defense against Russia, which sold 1,200 NFTs for US$ 600,000.¹⁰ ¹¹
Users explore, sell, and buy NFTs in dedicated marketplaces. These marketplaces enable users to explore NFTs by different use cases and key words, identify top ranked NFTs by metrics like volume, floor price and other statistics, monitor recent sales activity, learn more, and even create unique NFT collections. Several marketplaces support NFTs hosted on different chains, such as Ethereum, Polygon, and Solana. Recently multiple crypto exchanges have announced their own NFT marketplaces, including Coinbase, Binance, and Gemini. However, most NFT transactions are still completed in dedicated NFT marketplaces.
NFT marketplaces come in different flavors, with different degrees of decentralization and collection breadth. Top ranked OpenSea, along with Foundation.app and MakersPlace, are examples of centralized marketplaces controlled by a single company, facilitating the trading of a broad range of NFTs from a huge number of collections. LooksRare, X2Y2, Rarible and others are also multi-collection, but utilize a more decentralized design, commonly managed by DAOs. Some NFT collections also have their own dedicated marketplaces, such as CryptoPunks and CryptoKitties. These collection-specific marketplaces tend to be centralized around particular NFT studios today; however, we expect to see the emergence of decentralized marketplaces in the future.
Social tokens enable content creators to engage with their followers. Social tokens, which can include both fungible and non-fungible tokens, are used by influencers and other content creators to monetize their community by providing value-added experiences and rewards to their followers. Personal social tokens are released by well-known individuals to reward their supporters, potentially granting exclusive access to events and merchandise, confer status, and create a sense of connection with creators. For example, Los Angeles Rams wide receiver Brandon Powell’s $BP4 token provides access to exclusive football-related airdrops and exclusive merchandise.¹² Content marketing guru Joe Pulizzi’s $TILT grants token holders discounted access to educational materials and events for content creation.¹³
Building on top of personal social token benefits, community tokens can give holders governance rights, community influence, and revenue sharing. The Ultimate Fighting Championship’s $UFC token, for instance, provides access to exclusive content along with the opportunity to vote on polls.¹⁴ In the U.K., Manchester City football club’s $CITY allows holders to vote in polls organized by club, access exclusive promotions and content, and receive VIP treatment during games and other social activities.¹⁵
Social platforms represent control and ownership of protocols that facilitate the issuance and exchange of social tokens. These include the native token of Rally Network, RLY, which is the underlying protocol of Rally.io, a social platform for personal social tokens, and CHZ, the native token of Chiliz, a platform for launching community fan tokens commonly used by sports and gaming clubs worldwide.¹⁶
NFTs and social tokens will play important roles in the Metaverse. The Metaverse is not just a thing, but a time when we will be living much of our lives in the digital space, enabled by the convergence of technologies like artificial intelligence, augmented and virtual reality, data analytics, ubiquitous network connectivity, and yes, the distributed Web3 stack. Even though leading Web2 companies like Meta (Facebook), Alphabet (Google), and Microsoft would prefer the continued status quo with their dominant business models, we believe that much of the Metaverse will be decentralized, not controlled by a small number of companies, but rather composed of many different virtual spaces that connect and interact. NFTs promise to become the digital assets of the Metaverse, owned by users and movable across different virtual universes. Similarly, fungible tokens are likely to become the currencies of the Metaverse, just as cryptoassets are already becoming Internet money. Anticipated product launches from Apple and other technology companies will enable augmented reality experiences that blur boundaries between the Metaverse and IRL, or what is digital versus in-real-life.
Web3-based virtual and augmented reality platforms are enabling the Metaverse. In fact, there are already many Web3-enabled virtual worlds launched and evolving in the Metaverse. Decentraland, for example, is a decentralized virtual reality platform built on the Ethereum blockchain, where users can create, experience, and monetize their content and applications on NFT-based virtual real estate parcels called LAND.¹⁷ The Sandbox is virtual world that describes itself as a community-driven platform where creators can monetize voxel ASSETS and gaming experiences on the blockchain.¹⁸ Otherside is yet another example of a gamified Metaverse under development. Co-developed by Bored Apes Yacht Club creator Yuga Labs, the project intends to blend mechanics from massively multiplayer online role-playing games (MMORPGs) and Web3-enabled virtual worlds.¹⁹ NFT Worlds, Somnium Space, Voxels, Substrata, and NetVRk are more examples of work-in-progress, decentralized virtual spaces.
NFTs, social tokens, and the Metaverse expand crypto beyond Internet money. While NFTs, social tokens, and Metaverse land can have financial value, they’re also about incorporating humanity into Web3, including art, utility, community, and virtual experiences. We’ve discussed in this chapter about how NFTs are already making a dramatic impact on creative industries, with a dizzying number of emerging use cases. Well-known consumer brands are experimenting in the NFT space, with more likely to come. Web3 users explore, sell, and buy NFTs using a growing number of dedicated marketplaces that cater to different needs and functionalities. Adding to this, social tokens allow content creators and influencers to engage with their followers, as well as enabling communities to form around common interests. Because of all of this, NFTs and social tokens will play important roles in the evolution of the decentralized Metaverse.
For our last deeper dive into Web3 use cases, let’s move on to Decentralized autonomous organizations (DAOs), a new form of collaboration emerging to govern and manage decentralized Web3 ecosystems.
Monchester Macapagal and Kris Caigas of AcceleratingBiz contributed significantly to the research, writing, and production of this series.
Explore other Web3 for TradBiz insights and resources at acceleratingbiz.com.
Click on the links below to progress through the Web3 for TradBiz series:
[1] Web3 for TradBiz introduction
Web3 and crypto foundations
[2] Why embrace Web3 now
[3] Inevitable Web3 future
[4] Crypto and Web3 basics
[5] Advanced Web3 topics
[6] Using crypto wallets
Use cases and value propositions
[7] Web3 use case categories
[8] Decentralized finance (DeFi)
[9] Non-fungible tokens (NFTs) and the Metaverse
[10] Decentralized autonomous organizations (DAOs)
Web3 implications and opportunities
[11] Web3 impact on TradBiz market and business models
[12] Emerging Web3 investment opportunities
[13] Evidence of mainstream Web3 adoption
End notes:
¹ Horace Dediu, “Steve Job’s Ultimate Lesson for Companies,” Harvard Business Review, accessed July 19, 2022, https://hbr.org/2011/08/steve-jobss-ultimate-lesson-fo.
² “Market Overview,” NFTGo, accessed July 19, 2022, https://nftgo.io/analytics/market-overview.
³ Beeple (b. 1981), “Everydays: The First 5000 Days,” Christie’s, accessed on July 19, 2022, https://onlineonly.christies.com/s/beeple-first-5000-days/beeple-b-1981-1/112924.
⁴ NFTGo.io Research, “NFT Annual Report 2022,” NFTGo, accessed May 5, 2022, https://nftgo.io/research/mPABNUMvPt4ZaHtW03PjpKJCMOVl6WiktxH-yvo_OJo.
⁵ Ryan McNamara, “Celebrities that Own Bored Ape Yacht Club NFTs,” Benzinga, last updated April 26, 2022, https://www.benzinga.com/money/celebrities-that-own-bored-ape-yacht-club-nfts/.
⁶ “Welcome to the Bored Ape Yacht Club,” BAYC, accessed July 20, 2022, https://boredapeyachtclub.com/#/home.
⁷ “Moonbirds: The Official Proof PFP,” Moonbirds, accessed July 26, 2022, https://www.moonbirds.xyz/.
⁸ Joseph O’Neill, “What Are Utility NFTs? Unique Tokens Offering Real-World Benefits,” Decrypt, accessed July 19, 2022, https://decrypt.co/resources/what-are-utility-nfts-unique-tokens-offering-real-world-benefits.
⁹ “Crypto Baristas Season 2 White Paper,” Crypto Baristas, accessed July 27, 2022, https://cryptobaristas.com/white-paper/.
¹⁰ Vanya Gautam, “10 Big Brands that Have Dipped Their Toes into the NFT World,” India Times, last updated February 02, 2022, https://www.indiatimes.com/worth/investment/brands-that-have-entered-nft-world-560907.html.
¹¹ “How Brands Are Using NFTs — A continually updated list,” Adage, accessed April 25, 2022, https://adage.com/live-blog/how-brands-marketers-use-nfts-updated-list.
¹² “Brandon Powell,” Rally.io, accessed July 27, 2022, https://rally.io/creator/BP4/.
¹³ “Joe Pulizzi,” Rally.io, accessed July 27, 2022, https://rally.io/creator/TILT/.
¹⁴ “Socios.com to Launch UFC Fan Token Today at 5:00 PM (CET),” Ultimate Fighting Championship, accessed July 27, 2022, https://www.ufc.com/news/socioscom-launch-ufc-fan-token-today-500-pm-cet.
¹⁵ “Manchester City Fan Tokens ($City),” Socios.com, accessed July 27, 2022, https://fantoken.com/city/.
¹⁶ “Classification of Social Tokens,” Messari.io, accessed April 29, 2022, https://messari.io/research.
¹⁷ “Welcome to Decentraland,” Decentraland, accessed July 28, 2022, https://decentraland.org/.
¹⁸ “The Sandbox: Welcome to the Metaverse,” Sandbox, accessed July 28, 2022, https://www.sandbox.game/en/.
¹⁹ Otherside, accessed July 28, 2022, https://otherside.xyz/.
