Unleashing Communities with NFTs
Written by Conflux Network’s Geoff Le Fevre
With the increasing proliferation of digital content online being put on-chain, non-fungible tokens (NFTs) are beginning to capture the attention and resources of some quickly growing communities, unlocking new opportunities and value for their members. As an emerging asset class that represents “intellectual property rights to digital assets” NFTs are not just challenging traditional intellectual property based business models, but enabling new bottom-up business models for long tail digital assets.
Despite the recent hype, NFT adoption is still far from mainstream. Volumes and community interest are on the rise but if you compare unique wallet addresses the size of the community is still very small. In September 2020 only ~1K unique wallets were interacting with these protocols when daily volume peaked at $1.5MM — far lower than when CryptoKitties volume peaked in December 2017 at ~6K unique addresses. With sales of crypto art just a fraction of the traditional art market valued at $65B, NFTs are still very much on the fringe. However, just looking at daily sales volumes and unique wallet addresses, the true potential of NFTs is missed. The fact that NFTs are enabling liquid markets at the fringe is a very big deal and signals their true power. NFTs create liquid opportunities and liquid markets for long tail, low market cap digital assets.
Strategies for building liquidity in NFTs is very different then building liquidity for fungible tokens. In some respects it is much simpler technically — no liquidity pools, yield farming, or AMMs strictly required — but building liquidity for NFTs is more difficult socially. Building liquidity for NFTs and digital content is most critically about matching buyers and sellers. This involves a lot of network science, but more importantly a lot of community building. This in part explains why we have seen an explosion of NFT marketplaces emerge, each catering to a specific community. Marketplaces are aggregators and help lower search costs for artists and collectors, makers and takers, or sellers and buyers, generally. But a marketplace with a defined community and clear guidelines and culture helps lower these search costs even more. For example, SuperRare is a curated community with onboarding policies for artists and collectors, and quality guidelines for the type of art that can be uploaded to the marketplace. For the community they are building that is a good thing and helps attract like minded users to their platform, creating a sort of informal social layer that facilitates buying and selling more than just good UX can. For those that don’t identify with SuperRare’s community there are many other marketplaces out there that cater to slightly different communities. The point is that to create liquid markets for NFTs, building a strong community is a good strategy. A piece of crypto art can sell very quickly if placed in the right community, or not at all if placed in the wrong one.
Communities are non fungible. A strong community is unique and can’t be traded for another. As we have seen with NFT marketplaces like Rarible, OpenSea, and SuperRare, building and curating a strong community around your platform is the same as building value. Galleries curate their own communities of artists and collectors. Record labels curate their own communities of musicians and listeners. Game developers like The Sandbox and Horizon Blockchain Games curate their own communities of games and users. Founders curate their team to execute on their vision. If communities are the moat, then curation is moat improvement and maintenance. One other important thing to note about communities is that they are borderless. In the Metaverse, “content is the platform”, and there is more value if there is free circulation of goods and people across virtual worlds. At Conflux Network we believe that the same thing goes for blockchains and are building our community of Cross Chain Custodians to help facilitate the free flow of assets across chains to enable these borderless communities.
If building community is analogous to building value, how do you define value and price, both as a maker and taker. NFTs, as discussed, are a new digital asset class and are helping these communities not just build value but also define and quantify it. NFTs can be used as collateral on loans (Figure 1).
Some communities are even issuing tokens backed by a collection of NFTs. $WHALE is a good example of this, which started out as a private collection of valuable NFTs has now issued a token whose value is backed by the underlying NFT collection (Figure 2).
Some NFT marketplaces have issued governance tokens as a way for the community to capture value and participate in community management directly, such as Rarible which issued RARI its governance token which “enables the most active creators and collectors on Rarible to vote for any platform upgrades and participate in curation and moderation.” All of these behaviours emerging on top of NFTs represent new bottom up ways for communities to create and capture value, no matter how small. But also more than that, these behaviours are signalling new ways of engaging with your community, and brands are beginning to take notice. Top Shot, an NFT marketplace for trading NBA highlight cards has amassed more then $2MM in total making it top 3 of all time NFT sales for digital collectibles.
Economies of scale and the efficiencies realised in cost and output have dominated commerce resulting in a decrease in a variety of output, and consolidated inaccessible opportunities for most. For a person looking to curate any type of market for their people, *most* of the systemic options currently favour big monopolistic organizations. Facebook’s UI looks the same for everyone, McDonald’s produces the same Big Mac all around the world, mass produced apples are all grown from the same type of seed, and IKEA sells the same terrible art in all of its stores. There are deep systemic fault lines between centralized and decentralized decision making regarding whether to produce something at scale versus the desire (increasingly becoming a need) for variety. NFTs are a big paradigm shift, and are enabling liquid opportunities for fringe digital communities and long tail digital assets. Although new in its lifecycle, we believe at Conflux Network that NFTs are a critical building block to unlock decentralized commerce, no matter how niche. In fact the nicher the better. We believe that there is a lot of value in communities and we are working to help people build or access their own. NFTs are a major tool in our toolbox to do this, and are excited about what the future holds. If you are interested in exploring how you can leverage NFTs on Conflux to unlock value for your community please get in touch by joining our Discord!
About Conflux Network
The only state endorsed public, permissionless blockchain project in China, Conflux Network is an open-source, layer-1 blockchain protocol delivering heightened scalability, security, and extensibility for the next generation of open commerce, decentralized applications, financial services, and Web 3.0. Conflux Network is overseen by a global team of world-class engineers and innovative computer scientists, led by Turing Award recipient Dr. Andrew Yao. Fostering entrepreneurship and innovation, Conflux elevates startups and organizations across industries and continents to generate decentralized marketplaces and digital assets for meaningful business and social impact. Founded in 2018, Conflux has raised $35 million in capital from prominent investors including Sequoia China, Metastable, Baidu Ventures, F2Pool, Huobi, IMO Ventures, and the Shanghai Municipal Science and Technology Commission.