What Does Utility Mean In Our NFTs?
In the exploding NFT space, it has become almost cliché to discuss the need for a project’s “utility.”
Buyers seem to have a collective understanding that we can’t just trade cartoon pictures between each other forever; it’s not sustainable, nor is it fully utilizing the power of a decentralized marketplace.
At the same time, there doesn’t seem to be an agreed-upon definition of “utility” as it pertains to NFTs, other than some vague sense that it should add value to the pieces that we own. Much like the sales pitch for web 1.0 businesses in the late ’90s (like going to the pet store, but on the intertubes!), talking about a project’s “utility” may be good for generating buzz, but we don’t know exactly what to expect when it’s mentioned.
Let’s look at the ways that projects have tried to add utility up until now, and see where we might settle on an acceptable definition.
NFT As Art or Artifact
At its most basic level, an NFT can carry value by virtue of being either of historical significance (Curio.Cards or CryptoPunks), or simply art for art’s sake (Dario, for example, among thousands of others).
There’s certainly no expectation for the Mona Lisa to carry “utility,” and if a collector wishes to own a piece of art simply for the emotional response it evokes, that will always carry personal utility and can’t be a “bad investment”.
When it comes to historical significance, there is a reason why CryptoPunks, which would not be considered artistic achievements, trade above 20E; they were the first generative project on the blockchain, and that carries certain importance. In the same way that owning a first edition of a famous novel can be seen as an investment, owning one of these for historical significance will always have value, even if Larva Labs never drops another Meebit.
Internal Utility
The first level of utility, as we might want to define it, is what you could call “internal utility.” This would be utility within the project itself, which can take the form of either airdrops or gamification.
Airdrops have at this point become table stakes for any large generative collection, but whether they’ve added true value is debatable. As we’ve seen with both Bored Apes and Gutter Cats, the announcement of airdropped companions caused a spike in prices, but shortly after the drop, combined prices for both the originals and their partners fell down to roughly the level of the originals themselves before the drop.
In other words, if the drops had never happened, apes and cats might each have the same value today as (apes + dogs) or (cats + rats).
Certainly, if further announcements add value specifically for dog and rat owners, that could change the equation, but as of now, airdrops are novel and might generate some additional flip potential, but their “utility” is minimal.
The best use of this type of utility is a project like Ghxsts, which began with individual art pieces but expanded into a broader universe of memes and derivative pieces, all created by the original artist, and which provide opportunities to enter raffles or place bids on additional NFTs.
Creating this sort of expanded universe allows a creator to bring in more owners while maintaining the integrity of the original project. At the same time, the utility remains limited to the project itself; if the entire Ghxsts project loses momentum, then any benefits an owner has received will decline in value alongside it, since they’re all ultimately part of the same package.
Another type of internal utility is gamification.
Gamifying could take the form of an art piece that doubles as a game, or adding games to a generative collection itself, as in the case of Mad Cat Militia, which divides its 10,000 cats into 10 battalions that will do battle in war games. Given MCM’s slow sales, the community response to this type of gamification has been tepid, though that could certainly change as games ramp up.
Metaverse Utility
The idea of NFTs translating into benefits within the broader metaverse is mostly conceptual at this point; Sandbox is not yet live, and the use of Decentraland is still getting started.
The BAYC has purchased land, as have a number of other high-profile projects, and while the prospect of exclusive entry to certain areas based on NFT ownership seems immediately appealing, it also depends on metaverse adoption growing exponentially in the future.
In a space that seems to change by the minute, the promise of usability in months or years may lose its luster in short order, particularly if there are lengthy delays or technical issues that cause Metaverse use to be minimal over the short to medium term.
Real-World Utility
The highest level of utility for an NFT, which we’ve already begun to see with brands and sports teams, is real-world utility. That is, where an owner of an NFT is entitled to certain benefits or opportunities as a result of his or her ownership.
There’s little doubt that mainstream NFT adoption will be tied to this form of utility; your grandmother might not understand the blockchain, but if her Macys card gets converted into an NFT that she can easily access on her phone, you’d better believe she’ll figure out how to use it.
Topshot recently ran a contest based on moment ownership, wherein 8 users won trips to Game 5 of the NBA Finals, as well as a similar trip to the 2021 NBA Draft.
As NFTs gain momentum, existing businesses will want to figure out ways to either expand into NFTs or convert current products or benefit programs into NFT’s.
The next question is whether the current landscape of NFTs can translate into the same sort of real-world utility. Few generative art projects have thus far made substantive attempts to add real-world value based on ownership of their projects; the Royal Society of Players is looking to fill exactly this role.
The coming months will be telling as to whether the BAYC or other successful projects can implement opportunities like access to certain clubs or events based on ownership, which would prove a huge undertaking with only 5,000 or so members spread around the world.
In fact, given the appeal of blockchain anonymity for many users, keeping engagement virtual may be a feature, not a bug. If these assets remain entirely digital while traditional businesses move to include NFT technology in everyday life, then it may be the case that NFTs as a class of assets increase dramatically in value, while your individual portfolio moves in the opposite direction.
Of the current class of NFTs, those with the best chance of retaining and growing value over the long term may be play-to-earn games like Axie Infinity, which have allowed players to earn incomes that may be meaningful depending on location by engaging with the game. Covering your day-to-day expenses certainly adds utility to any project.
The Utility Wild Card: Community
There is one more type of utility that NFTs have begun to provide, and it doesn’t fit neatly into any of the above categories. Particularly with avatar projects, NFTs have built communities.
BAYC, Cool Cat Gang, NBA Topshot; each of these has distinct (though overlapping) communities, and owners have been brought together, both virtually and in real life, based on their shared interests. Perhaps this need has been amplified from spending the last two years isolated and alone, but they’ve clearly tapped into a real desire to form bonds in a way that traditional social media has struggled to accomplish.
Most of us in the NFT space are not art connoisseurs.
We may occasionally buy a piece for our own enjoyment, but for most of us, we expect some positive financial results to come from our purchases.
For NFT projects to continue to thrive, as so many have so far, they will need to go beyond being eye-catching or rolling out the same roadmap we’ve seen a hundred times.
They will have to demonstrate, one way or the other, the ways in which they add utility to our lives.
That will likely mean moving increasingly toward the more meaningful forms of utility: offering direct financial incentives, providing real-world benefits, or building a lasting community.
Any work that is unable to do so may not survive in the long run.
