NFTs — Utility beyond PFPs
NFTs have taken the world by storm, yet people (outside crypto) still ask, “why are you paying so much for a picture?”
Bored Apes are trading at 150 ETH ($420k) per piece, Azukis at 24 ETH ($67k) and Clone Xs at 17 ETH ($48k) — at the time of writing.
Famous art pieces are spared from luxurious pricing, but a different standard is applied when it comes to digital art. Perhaps NFTs are not just digital art to be hung up as ornaments on your virtual wall?
Identity
Today, the majority of NFT projects are profile-picture (PFP) based — users buy an NFT to be part of a community, then change their profile pictures across all social media platforms to a new avatar that represents their persona. True ownership is theirs, since they own the metadata to that .jpeg file on the blockchain, and they are proud of it.
You see their PFP and you know who’s tweeting, they change their PFP and you have to check their handle to see if it’s someone new. Their identity is forged, claimed, and owned by only them.
But often, most NFT projects stop there. They fail to deliver beyond the promised “hyped up” roadmap and go into oblivion after a few months. Identity and “true” ownership still holds, but sustainability of NFTs lies in other utility. Retail buyers want more use cases.
1. Membership utility
Earlier this year, IreneDAO launched the first proof-of-concept for on-chain fan communities. Owning one of the 1,100 IreneDAO NFTs would serve as a membership ticket to exclusive events, culinary concept kitchens and gated communities with Irene Zhao (an influencer based in Asia with >500k social media followers). As an owner, you can vote for the theme of events, when and where it should take place, who should get involved, etc.
In the first few days of launch, the NFTs traded as high as 6 ETH and until end-Jan, had an average trading price of 1 ETH. Even other influencers like Logan Paul (6.3m followers) were buying it up to be a part of the exclusive community.
Since IreneDAO’s success, many projects started emphasising the narrative of owning NFTs for membership utility.
- Alpha Shark is an NFT project that enables owners to gain access to an elite Chinese Discord group filled with data scientists, blockchain analysts, macro trends and NFT experts
- Tiger Being is a private travel club membership NFT project on Solana, where holders get exclusive access to hotel / airline / private yacht offers via an “NFT pass”
- LIT AF Podcast Club gives consumers a small segment of their podcast to listen to, while full version access are only entitled to NFT holders
2. Empowering creators
There is something inherently flawed with traditional compensation structures for original creators. In the music industry, streaming platforms like Spotify purchase a license from artists for a right to stream their music on the platform (one-off fee). The artist then gets royalties based on each stream, but the payouts are determined by complex criteria, e.g. listener geography, country’s currency, artist value — all of which make it difficult to verify.
Crypto and NFTs disrupt this. Some artists have made more from a single NFT drop than their entire life in the entertainment industry.
For RAC, the first NFT he sold was an audio-visual art loop in collaboration with Andres Reisinger, where only the NFT buyers would own the original verified copies created. It made him $26k, more than what Spotify would’ve netted him in 3 years. Justin Blau (commonly known as 3LAU) sold an NFT collection that allowed buyers to get limited-edition vinyl records, unreleased music, and access to special events. This earned him $11.6m. In comparison, earnings through streaming platforms only record as little as $0.0033 per stream.
NFTs upend the way artists are rewarded financially and how they engage their followers, but more importantly, create an avenue for consumers to interact with artists too.
Aligned incentive structure:
- User owns NFT which gives them membership to the DAO / project
- This means they own a stake in the DAO, which appreciates in financial value as more collaborations, events, partnerships are established
- NFT holders are incentivised to promote the fan club and creator, and work with fellow holders across the world to arrange collective growth opportunities both online and offline
This leads to a feedback loop where consumers who own a stake in the decentralised community publicise the project, empowering the creator to make more content for a loyal follower base that generates them revenue and activity.
Emerging examples
Releap is a Solana-based music NFT platform looking to empower artists with new ways of engaging with fans. Artists can list either (i) Music NFTs — NFTs backed by single music tracks stored on Arweave, and / or (ii) Circle NFTs — NFTs that offer exclusive access to a creator’s closed community.
This provides a platform for emerging artists to grow their brand, while giving users a way to get close connections to their favourite independent artists. Being a holder of this NFT, users will be part of a small group of fans that have access to exclusive content, community, and insight into the creative process of the artist’s profile.
SoundMint is another player in this vertical, who are building a platform for generative music & visual NFTs. SoundMint facilitates the collaboration between musician, visual artist, computer and NFT collector — enabling artists to upload a soundtrack for a generative art NFT to be produced on the platform’s backend.
Music artist KLOUD and visual artist Alex Hooker were the first to launch a collection through SoundMint, distributing 5,000 generative music NFTs in the genesis drop. On top of owning a unique art piece combining generative visuals and music, buyers would get non-commercial license rights and entry into a community with direct access to KLOUD and Hooker.
Some considerations on existing models
The models above have existed for a while but are still limited in some aspects. Most creators get a lump sum payment from the sale of their genesis NFT drop. While they receive royalties on secondary sales, a bulk of their revenues come from the first sale. This leads to mild incentive misalignments since short-term creators looking for quick “cash grab” may stop producing meaningful content and reduce engagement with users after the genesis NFT sale.
Another issue is that many of these projects still lack a comprehensive platform that can:
- Seamlessly verify user ownership of the NFT
- Give them immediate access to the closed community with like-minded members
- Follow-up with events, engagement and direct communication with the artist
If you’re a founder looking to address some of these pain points, we at Hashed would love to get involved and challenge you along this brainstorming process.
3. One last thing! — Customisable NFTs
We’ve shared about membership utility and empowerment for creators — what else? PFP-focused NFT projects can differentiate themselves by introducing customisable avatar NFTs.
Let’s look at an example with Bored Apes (BAYC):
There are 10,000 BAYCs and each BAYC has 7 properties with accompanying elements per property. The chances of finding your “Ape with specific desired characteristics” among the 10,000 are slim. Even if you do find one, you are stuck with its properties for good — if you liked its leopard-skinned look initially, but later find it unappealing, there’s nothing you can do but sell.
You may end up with a closet of clothes, accessories and items that do not keep up with the latest trends.
Unlike today’s static PFP NFTs, customisable avatar NFTs are composed of 2 layers: (i) the avatar and (ii) its wearables. Much like how you enjoy fashion in meatspace, you can dress your avatar NFT (base layer) with wearable NFTs (customisable layer). As more metaverses are being built and more users join, avatars may be key to access these worlds, its services and create social structures.
This concept opens up a world of opportunities on the B2B and B2C level, and are key areas DAVA Project are working on:
- B2B — Established brands with unique Intellectual Property (IP) rights want to penetrate the web3 market, but find it difficult due to the greatly saturated NFT scene and high proportion of failures & scams. By collaborating with DAVA through branded wearable assets (e.g. NIKE-branded caps or Adidas-branded sneakers), these conglomerates can seamlessly migrate their IPs into metaverses and monetise a new user base.
- B2C — More than anything, being able to customise your NFT avatar with different wearables gives the user a refined, more appropriate, sense of identity. DAVA is building a marketplace for traded wearables, allowing people to design, buy and sell their favourite items. After all, individual items have standalone values depending on how branded they get (e.g. trading on-chain Yeezy sneakers). By being able to style your avatar in any way, DAVA provides a tool anyone can leverage to express themselves.
Conclusion
There is no doubt that NFTs are here to stay.
The business models above are not exhaustive. They serve as examples to show how NFTs that were considered a fad and a threat to the environment >1 year ago, is today one of the most important intermediaries in traditional industries — be it finance, entertainment or fashion.
At Hashed, we’re excited for developments in this vertical and are looking for founders innovating with NFTs. Please do not hesitate to reach out if you’re building something interesting!
