NFT Utility is Dead. Long Live NFT Utility
The Economists Knew All Along!
During NFT Connect Austin, we held a panel on utility, and the conversations we had stuck with me — for no other reason than the word “utility.” But unfortunately, I don’t think we finished the discussion right.
I still think all the “look, it’s worth money! people” in crypto and NFT never consider what “utility” means.
After the conference closed, I kept looking. I found an answer in the world of behavioral economics, under the category “economic utility.”
The “Economic Utility” of something is the total benefit one receives from a product or service. “Economic Utility” comprises four types of utility; Form, Time, Place, and Possession Utility.
“Form Utility” occurs where the product or service is just satisfying a need. “Time Utility” happens when the product or service is available when the person seeking them out needs them. “Place Utility” is about the product or service where the potential consumer is when they need it. Finally, one experiences “Possession Utility” when the value is a function of owning the product or service and can use it whenever they want.
Let’s look at real-world and web3 examples of each utility type.
Form Utility: Food & SBU DAO Honeypots
In the case of “form utility,” assume the real-world item is food — especially when one is hungry. That pulled-pork burrito from Nacho Mamma’s could satisfy one’s “form” utility needs.
What if you participated in a token-yielding arrangement with a DAO? It was agreed that the DAO would yield tokens to you — but collected a 50% “tax” on your claim? What if you could make a one-time acquisition of a few NFTs that could altogether remove that tax burden? Those NFT purchases would satisfy the “form” utility need of someone looking to eliminate their tax obligations.
Time Utility: 1-Day Delivery & Asset Backed NFTs
Research shows that people value the present far more than the future in the case of time (or intertemporal **) utility considerations. We’re short-term thinkers when it comes to considering utility.
If the item is there when we need it — and if it’s scarce at that time — the more utility one will value in this context. “Scarce” can also be “more valuable” — for those keeping scores.
Amazon can now deliver within one day (or less) in many US cities. Compare that to other online catalogs — or the time it takes to go shopping for a highly disposable product such as laundry detergent. Amazon’s delivery speed is a differentiating time utility.
Historically, if one were to stake funds in a Decentralized Finance (DeFi) protocol and then needed the staked funds back, one would have to take the time to unstake their LP tokens and remove their liquidity from the protocol. Quite possibly, they would then have to liquidate one-half of their protocol pairing to have “spendable” capital. This would take significant time to do.
With an asset-backed NFT, a staked holder could quickly sell their asset-backed NFT for “spendable” capital in one transaction and move on.
Place Utility: Frozen Lemonade & Nightclub Access
Rhode Island has an iconic frozen dessert from a store called Del’s that serves an ice slush with fruit-flavored syrup. Come the summer; they set up mobile stands at the beaches during hot weather. As a result, Del’s has a higher chance of getting my business because they are where I am when I want to cool down.
During NFT.NYC, if you “held” a certain NFT in your wallet and demonstrated this holding to the doorman at a club, you could enter the club when others — who did not hold this NFT — could not. If the promise of an evening at that club was great enough — and the NFT was for sale at the door — one might acquire it. This would be a form of “place utility” in the realm of NFTs.
Possession Utility: Tesla & SBU BEE NFTs
When someone takes ownership of their brand new Tesla, they are experiencing possession utility — they derive value from opening and using their new car’s features.
In June of 2023, just by owning a BEE NFT, one can begin to access the yielded ERC-20 (BHNY) tokens associated with that BEE NFT. The NFT owner will be deriving value from owning and using the features of their BEE NFT.
Where is the Utility?
Ask these questions early and often because when viewed through the lens of overall economic utility, many NFTs may measure up better than others. So how do the NFTs in your wallet measure up?
NFT Austin Utility Discussion
While we didn’t cover the topics above, the session was excellent see for yourself.👇
Hats to Kim Merkel for helping me develop the theme for the fantastic session we held at NFT Austin. The title started as “Is Utility BS?” but somehow turned into a lighter, “web3 Utility vs. web3 Novelty — What’s the Difference?”
** O’Donoghue, T., & Rabin, M. (1999). Doing it now or later. American Economic Review, 89(1), 103–124