Enjoooying NFTs
How to participate in the web3 community, not get rugged and perhaps make a profit
Unless you’ve literally been living under a rock, you’ve heard of non-fungible tokens (NFTs). While the results of early crypto natives experiments with on-chain generative art are known to veterans in the space as CryptoKitties and Cryptopunks, with Bored Apes (BAYC) a newer trend, NFTs have now, finally, gone mainstream.
Almost 4 million unique wallets have owned an NFT, up 300% from a year ago, and looking like the exponential growth to date still has momentum. Almost $50 billion in NFT value has been traded on the major exchanges.
Each NFT is a unique crypto asset existing on a blockchain. The ownership ledger is immutable, even if the underlying art or even the meta-data is not. A lot of NFT buyers believe that because the token is immutable, the image of the NFT must be also. That’s not the case. Unless stored properly using Arweave, NFTs stored on IPFS face the risk of linking back to a 404 error page one day.
Though an NFTs could be almost anything that has some uniqueness and likely some value associated with it, NFTs to the enjoyoor usually includes digital art, whether 1-of-1s or a series of digital collectibles.
Supporting the new creator economy
NFTs are great for both creators and users versus the web 2 digital experience. They offer a way to connect directly with one’s fan base while removing the gatekeepers and thus keeping a majority of the profit.
Long term oriented creators can build themselves a project treasury through royalties on secondary sales. Adam Bomb Squad likely earned in excess of $1.3 million, based on a 2.5% fee on 19,700 ETH of volume.
The rewards of NFTs
The fans who are happy to support their favorite artist are able to purchase verifiably authentic products while enjoying them in a community setting. But this is crypto, and the profit motive is ever present. Adam Bomb Squad buyers may be supporting the artist, but they are also supporting themselves. The NFTs are up over 5x from initial mint, even with prices 50% off the highs!
There are astronomical returns in every price range. Prescient Punk buys netted millions of dollars, up to eight figures. There are many Bored Ape minters who have made hundreds of thousands. But smaller bets can also win big, given the potential of new mints to 10x or more in a short space of time.
Rising prices bring attention to the space, which is welcome as we onboard more users into a web3 world. On the other hand, the opportunities come with risks, especially for newbies.
I wrote this piece to encourage new NFT enthusiasts into the space, while at the same time manage expectations and warn of the risks. If you don’t want to follow in my footsteps and learn the hard (and expensive) way, I suggest you focus on the success drivers of the now-blue-chip NFT, and pay attention to all the ways to be scammed.
NFT Musical Chairs
As NFTs have become more popular in mainstream media there is a rush of new entrants looking to make the same returns they see on Twitter or in the mainstream media.
Yet with more money comes more problems and we are seeing that recently with NFTs. The ways to lose your money are endless. I’ve broken them down into our categories:
- Pure scams
- Smart contract exploit
- “Rug pulls”
- Poor execution/stupidity
Pure scams — We hear constantly of users who give up their seed phrases and subsequently lose everything in their wallet that they have been holding for months. BAYC holders are infamous for this type of behavior, though the question remains unanswered whether it is because they are new to crypto or if they are targeted more.
Either way, using a hardware wallet and understanding private keys would alleviate a lot of these problems. Rule 1: Don’t give your seed phrase to Metamask support! More on crypto safety can be found here.
Smart contract exploit — Many NFT creators are not proficient coders, and are even worse at cybersecurity. Even crypto powerhouses such as OpenSea can be attacked. If you want to ape into early mints, or trade at all, some risks need to be taken.
Rug pulls — When an NFT product fails sometimes it’s hard to tell if it was a “rug pull” that was intended to separate fools from their money, a low-effort money grab, or a poorly-conceived launch that had otherwise good intentions. In any event, with the right amount of hype and luck, scammers can generate enough community interest to get people clamoring for a whitelist spot hoping to hit an instant 10–20x.
This is what happened with the recent Pixelmon fiasco. But the quick gains faded fast. The mint sold out at 3 ETH, around $9,000, each for a 10k collection, raising roughly $70m USD. Buyers had to wait weeks for the reveal to happen and when it did it was less than satisfactory. They are now worth less than $700 each. No refunds.
Of course, all sorts of tricks can be pulled when trading so-called “illiquid JPEGs”. Front-running is rampant among those in the know. And price manipulation to stimulate either fear and greed, or even both at once, is common. Every crypto and NFT trader should read this book (bonus benign that it is free).
How did we get here?
In Jan 2021 we saw the first initial hype cycle with Crypto Punks, NBA topshot, and Artblocks, as well as big headlines from Beeple and on chain generative art. It lasted for a few months, with record-breaking volume.
But it wasn’t until after the May 202’ crash and subsequent chop through the summer that NFTs came into their own. Perhaps crypto speculators could see the failure of DeFi 1.0 and were looking for somewhere new to put their money? In any event, NFTs were back, but this time with an almost-exclusive focus on profile pictures (PFPs). Punks led the way with a 10x over the late summer.
This lasted until ETH began its second grind up to ATHs at $4800 and people capitulated their NFTs in fear of being severely outgained by ETH price action, rightly so.
In this third mini cycle which started late December 2021, PFPs and Metaverse real estate were the main focus for enjoyoors. BAYC hit a 110–120 ETH floor, flipping Cryptopunks in January 2022. Again we saw record exchange volume.
The NFT craze attracted celebrities, such as Steve Aioki, Justin Bieber, in addition to rappers like Snoop (below) and famous athletes like Steph Curry
Many started minting their own. Snoop Dogg recently produced a collection of Sandbox avatar while Michael Jordan dropped his first NFT collection called 6 Rings on Solana.
And it wasn’t long before corporations wanted in, with Nike acquiring RTFKT an indication of a sea change. Adidas has a partnership deal with BAYC, Ubisoft with Frontier, and Dolce & Gabbana dropped their own NFTs.
It’s been a great period of euphoria for NFTs but I believe that it’s unsustainable with increasing cash grabs, outright rugs, and overall saturation of the market.
So do others. Cobie has always tweeted hilariously disparaging things about NFTs. On the other hand Keyboard Monkey is one of the largest buyers of NFTs and now publicly bearish on PFP collections, the bulk of the market right now.
Is a crash in NFTs coming? In times of fear and uncertainty risk assets are usually the ones to suffer first. NFTs are at the outer bounds of the risk curve and may be the first to capitulate, especially with extremely thin liquidity. Think of them like turbo shitcoins, and I am sure you know what happens to those. [… shaky geopolitical nd macro conditions.]].
How to not get rugged, enjoy your NFT (and perhaps turn a profit)
I do see a risk that many NFTs go to zero. There are a lot of projects, and in art and fashion there are usually only a few enduring winners. So, those looking to get involved, for fun and profit, should focus on four key themes:
- Digital identity/brand
- Team
- Community
- Utility
Digital identity and brand
PFPs have been the most newsworthy and active NFT sector. Once the domain of the nerds and crypto insiders, normies, sometimes famous ones, have taken over.
Even Twitter recognized the importance of PFPs.
I do not see any end to this trend, at least on a long-term basis. As we move to a world where people spend more of their time online, it makes sense that digital identities should become important.
High value PFPs act as a signal, or “flex”, to the outside world, and are increasingly becoming luxury goods brands. A person wearing a Rolex signals a certain level of wealth, desired PFPs elicit the same reaction on the internet. [analogy to traditional fashion or something here]
The acquisition by Nike of the Clone-X PFP project(through RTFKT) signals the opening up of a whole new digital market segment: Selling products to a user’s Metaverse identities.
Another dynamic to digital identity is being able to feel a part of a tight knit community. In a post-COVID time where individualism is promoted and where people feel lonely and isolated, NFTs offer an escape and a way for random anime pictures on discord to form a shared bond.
Some of these communities have coalesced around their PFP identities to create some amazing value for projects. Degen Apes community formed their own thing called the DAOO, had a ‘student council’ vote for the board members of the collective and even set up their own Solana Validator.
Some will win, most will lose
While I believe there are a few PFP collections that will retain value long term, I see most trending towards zero, as liquidity dries up and the game of musical chairs ends. Insiders at that point will move on to the next pump and dump, and shillers will find something new to sill.
The market has become incredibly saturated, and each low effort mint will remove more and more money from market participants, and into the hands of scammers. If you want to avoid the high stress game of hot potato with worthless NFTs, focus on projects with teams that have long term vision and communities that are cult-like.
Team and Community
Selling out a mint is one thing, but sustaining and growing that value long term is a hard feat to accomplish. Post mint, founders can become very wealthy. Now that they have money will they be motivated to deliver on the long term roadmap? No one can know for sure, but this is where proper due diligence into the team and community comes into play.
NFT projects are carried by their founders firstly and community secondly, but both are important. Let’s take BAYC as an example, pictures of apes which initially had no further utility. Those who minted during the original sale at .08 and held would have had a peak value of 153 ETH floor (BAYC 120, MAYC 25, BAYC 8). With a price of $2800 for ETH at time of peak, that would be a value of $428,400 in USD terms.
Of course the team needed to execute — on airdrops, real life meetups, and other holder benefits — but I believe the value in BAYC was primarily driven by the community creating a culture around the collection. The NFTs become part of the holders identity and even when the floor becomes life changing money for them they still choose not to sell.
Pictured: Mega Mutant Airdrop (top left), Venice BAYC meetup (top right), BAYC merch (bottom left), and BAKC airdrop (bottom right)
Is a $300,000 valuation for a PFP NFT highly overvalued, or is it the beginning of NFTS as digital luxury goods? Again, no one can say for certain, and a good argument can be made either way, but there is no denying that NFTs have made their impact on culture. The project has gotten so big that Yuga Labs, the company behind BAYC, has been in talks with VCs for a raise at the valuation of 5 billion.
It may be too late to play BAYC (though the lower valued YCs may have some room), so I suggest some other alternatives here that have equally great communities and founders.
Altered State Machine is another ecosystem with NFTs that have proven to be amazing investments, attributable in large part to the founders/team of Fluf World and ASM. Both projects originate from Non-Fungible Labs, a team with a passion beyond making a boatload of money.
Fluf World started out as a PFP project that was both 3D and multimedia, beginning with music and swappable backgrounds to go with the Fluf. Months later, Non-Fungible Labs’ vision becomes more clear with every airdrop and AMA.
Since the initial Fluf mint we now have:
- Altered State Machine AI Brains — plug and play with Flufs and the game AIFA all-stars
- Party Bears — a 10k collection of a similar multimedia style with synergies to Flufs/Brains that will be your personal Metaverse DJ
- Thingies — companions to Flufs and have 2 special functionalities; making their own generative art and mining the Fluf token Mycelium, and
- Fluf World Burrows — Metaverse land for all compatible ASM NFTs to enjoy. There are rumors that BAYC NFTs are compatible.
The NFTs are catching on with nerds, crypto OGs and normies alike. Non-Fungible were able to partner with Snoop Dogg to make 500 custom Snoop Dogg Burrows with your own personal nightclub! Snoop also has his own 1/1 Party Bear.
Other cool benefits of holding certain Flufs, Bears and Burrows include real life parties like the Fluf Haus party they had in Los Angeles during Super Bowl Weekend, with guest appearances by Snoop Dogg and Gary V.
The lesson here is that projects that are able to get their communities immersed in their content will see the greatest longevity, and are therefore worth keeping an eye on. It doesn;t help to have competent and motivated devs, of course!
Gamefi and NFT Utility
My next long term trend to watch involves all-inclusive gamefi NFT economies such as Treasure DAO (token is MAGIC) and NFT Worlds (WRLD).
Treasure DAO is focused on building an all inclusive gamefi ecosystem that the user will never have to leave. The key elements of Treasure DAO include:
- Games such as Bridgeworld
- An NFT marketplace for gaming NFTs/art collections and
- Governance by MAGIC stakers to influence the project’s direction.
Recently the TreasureDAO announced that it would be moving gaming operations to its own Cosmos Dapp-specific chain in order to lighten the fees for users who complained that Arbitrum, even though a layer 2 cheaper than Ethereum)was still too expensive. This combination with Passage (devs of the Strange Clan game and upcoming Metaverse worlds) and the Stargaze NFT platform, both also on Cosmos and linked by IBC, could be the start of a big explosion in Metaverse activity.
NFT Worlds is a 10k collection of Worlds built atop Minecraft, but NFT enabled. Anybody will be able to buy these worlds and build whatever they can imagine, and monetize their creations by providing entertainment to people in the Metaverse. This project has seen a lot of recent buzz, as Metaverse land NFTs became a hot trend in the space, while Minecraft is one of the most played games worldwide. This project will give Minecraft builders who have a knack for creativity a way to make money from their skills.
A project called Skuxxverse has utilized an NFT mint, dropping 7,777 Skuxxverse passes, to fund the accumulation of a warchest of NFT Worlds. They will hire outside developers to customize these worlds, driving revenue to ticket holders as well as earning airdrops due to their world ownership.
Funding projects through NFT mints is a great way for smart builders who may be low on funds to build out their dreams.
Looking Ahead
There are other unique use cases for NFTs that could become more popular as time goes on. Using NFTs as a way to crowdsource from the community is an idea that is starting to become more and more prominent. Wassie NFTs, formerly known as Loomlocks, utilized the method to raise roughly $30 million to launch a startup idea. Shadowy Super Coders on Solana did something along the same lines. A decentralized storage and compute project, SSC created a NFT collection that promised buyers an allocation in their token launch. Early minters and buyers were rewarded as the NFT traded from 5 sol up to 120 Sol, enriching community members and funding the founders without outside VC investment. Another one to keep an eye out for is Lifinity Flares, a protocol on Solana that is focusing on concentrated liquidity pools.
2022 might be the year of the music NFTs, they have been talked about since last year but have only recently started to find some footing. For example, Party Bears will be launching a new mint called Party Packs. These NFTs will include venues and music made by top artists like Disclosure, Dillon Francis, Snoop Dogg and Cypress Hill. The NFTs will be like owning limited released music IP from your favorite artists that can be used by your Party Bears to DJ concerts in your Fluf Burrow using ASM Brains. Now it’s starting to look a lot more like a Metaverse.
Artists will finally be able to take more power into their own hands, earning multiples more than they do through streaming services such as Spotify, by using NFTs to remove the barriers between them and their fans.
Lastly I am always intrigued by projects that offer other fan experiences or gated access to merch drops by holding NFTs. Adam Bomb Squad (ABS) by the prominent streetwear company the Hundreds is a premier example of holding an NFT and getting access to every future project the team does. The Hundreds had a long-running successful traditional business but had the foresight to see NFTs as another way to get more die hard fans and leverage a new community. As one of the top projects in the space, ABS has the opportunity to collaborate on clothing with other top NFT projects. Even brands like Harry Potter!
The limited edition clothing drops are offered to the collection holders first, utilizing NFT gated access with a Shopify partnership, and are subsequently sold out in a day or two. I expect to see more brands/creators leveraging NFTs in the same way, creating a more enjoyable experience for the consumer and a more lucrative one for the supplier. RTFKT is doing just that with Nike, recently dropping the MNLTH NFT to Clone-X holders. Rumored to hold the lower parts of the accompanying Clone-X to be forged into a 3D metaverse ready avatar.
Positioning
Are we in a bubble? Who knows? What I do know is that nobody should fade the long term potential of NFTs, I always use market corrections to accumulate the best of the best projects. Besides those mentioned above, I see Capsule House and RTFKT as being primary beneficiaries of the trend towards capital concentrating in projects with the most capable teams and communities.
I believe these early NFT brands with the best founders and the best communities are poised for tremendous success in becoming high profile digital brands of the future. Cool brands with the right teams will also be successful in bridging the gap to the Metaverse.
Other founders like Roham from Dapper Labs have built their own L1s dedicated to NFTs, aimed at a safer and easier experience for end users.
In order to decide for yourself which is the right project to buy into, you will need to spend some time familiarizing yourself with the team and the community, and that is generally best accomplished by being an active participant in their Discord communities.
How cohesive are they? Are they fighting about the floor constantly (big red flag)? Or does collaborative chatter on how to improve the project dominate, with “good vibes only” (an encouraging sign to dig deeper)? Another thing to check for is how the team interacts with the community through Twitter and Discord, making sure they are responsive and not pushing fishy updates.
Investors with smaller bankrolls can get started by finding different GameFi games that have lower entries of barriers, or have some type of renting system in place. From there you can build up your money by playing the game, and doing things that larger accounts might not bother with. It also gives you the ability to learn different games from the ground up and will enable you to spot which game economies may work and the ones that may not.
On the flip side if you are someone with not as much time to play the games then it might be a better strategy to compile a list of the top GameFi games you want to be invested in. There are some interesting games out there right now, but the majority have high FDVs that will unlock without sufficient buying demand. Waiting for the quality ones to slowly bleed out and capitulate may provide a great entry to get exposure.
If you read up to here, congratulations. Hopefully you now have a better understanding of some of the elements that factor into NFT trends and where they might lead.
I believe NFTs act as the greatest gateway drug to the world of crypto, the more users we can safely on-board using them, the more community we build.
