What Are NFTs And Why Do DAOs Need Them
What are NFTs?
Non-fungible tokens (aka NFTs or nifty’s) are crypto tokens representing digital ownership of assets. NFTs act as digital deeds and allow anyone to become owners of digital or physical items. Unlike traditional currencies, each crypto token is unique. NFTs are commonly used to represent one-of-one or one-of-many images (JPG, PNG, GIF), videos (MP4, MOV), audio (MP3, WAV, FLAC), or AR/3D (GLB) files.
NFTs are digital collectibles that can be bought and sold on online exchanges, auction houses, or peer-to-peer (aka P2P) platforms. NFTs represent assets, each with unique characteristics thanks to blockchain technologies and P2P networks.
In 2017, Dapper Labs released CryptoKitties, an Ethereum project that defined unique crypto tokens and proposed ERC-721, which would become the default token standard. Since 2017, the demand for collectible assets, digitally verifiable on the blockchain, has grown exponentially.
NFT-focused marketplaces like Rarible, Zora, OpenSea, Foundation, and SuperRare, have emerged to fill the space. On March 21, the total art trading volume on NFT marketplaces surpassed 205M $USD ( CoinGecko). That’s 1,281X growth in one year ( CoinGecko).
The market fluctuations of cryptocurrencies heavily influence nFTs. On Sep 3, 2020, the market cap was $371M $USD ( CoinMarketCap). Today, cryptocurrencies’ global market capitalization (market cap) has surpassed 2.24T $USD ( CoinMarketCap). That’s a 6X growth in one year!
What are DAOs?
Decentralized autonomous organizations (aka DAOs) are digital teams that collaborate without a central controlling authority. DAOs operate on computer networks (aka blockchain nodes) and rely on decentralized technology to govern and record transactions (aka smart contracts).
DAOs are token-driven organizations that launch and manage their own branded crypto tokens. These decentralized organizations can also manage non-branded crypto tokens (say Ethereum $ETH). DAOs issue tokens (aka governance tokens) to allow their community to vote on proposals and make collective decisions. DAOs can also issue equity tokens or utility tokens with rewarding and incentivizing their members towards positive behaviors. DAO members collaborate to maximize value using crypto tokens and blockchain technologies.
Launching a DAO is easy; the hard part comes after minting your own DAO tokens. Here is a simple three simple step method in creating your decentralized organization:
- Choose a token name (say Unicorn token or $UNI).
- Define your token supply (say one billion).
- Then launch your smart contracts.
This blog post will cover three DAO use cases for NFTs: liquidity, revenue, and rewards. Liquidity and project revenue are essential for the continual evolution of your organization. Community rewards are necessary for incentivizing people to perform positive behaviors.
NFTs as Liquidity Tools for DAOs
As a DAO, you need liquidity to fund your mission. Liquidity, or the ease of buying or selling assets, is based on current market conditions and deployed infrastructure. Not enough liquidity or capital means that you and your team will fail to reach your full potential. Capital is crucial to ensuring token-driven organizations can leverage labor, code, and media to maximize their potential. Every startup and company faces similar issues from Day 1. Modern organizations need modern tools to raise capital.
DAOs have a hard time raising funds from traditional investors. DAOs often lack legal entities, and as a result, have a hard time convincing traditional investors (aka web2 investors) to send capital to a blockchain wallet. DAOs often lack compliance, and as a result, have a hard time raising money with fungible tokens (aka FTs).
NFTs provide friendlier alternatives to traditional crowdfunding mechanisms and traditional investors. When DAO founding members have little or no personal savings, they can turn to NFTs drops. These crypto mechanisms allow founding members to bootstrap modern organizations. DAOs can mint their own NFTs to incentivize community members to become token holders. Community members who purchase these branded tokens own part of the organizational history.
NFTs are modern tools for community engagement, creativity, and decentralized finance (DeFi). DAOs can use NFTs to tokenize everything, from material things (such as DAO swag) to ideas (such as DAO milestone), artwork (a DAO painting by Satoshi Nakamoto), or even time (such as DAO tokens). NFTs can be used to increase liquidity in DAOs, increase investor confidence, and increase the transparency of organizational assets, content, or intellectual property (aka IP).
How does a DAO go about dropping NFTs? DAOs can use existing NFT marketplaces ( Rarible, Zora, OpenSea, Foundation, SuperRare) to drop their own NFTs without developing smart contracts.
NFTs as Revenue Tools for DAOs
One of the biggest challenges facing DAOs is revenue. Without product revenue, DAOs become trapped in a never-ending cycle of borrowing money. They have to keep launching new products or features to stay alive, but they have diminishing returns without project revenue.
To maximize revenue, DAOs must shift from selling non-tokenized (aka web2) products or services to tokenized (aka web3) products or services. Thanks to NFTs, it’s possible to tokenize goods and services.
NFT marketplaces, auction houses, and platforms empower DAOs to generate revenue without relying on traditional means of revenue gain (subscription models, advertisement models, or sponsorships).
NFTs have proven to be highly effective at increasing DAO sales. NFTs act as crypto sales tools. Sales could range from a single purchase for an NFT to recurring revenue through token-gated content or token-gated communities.
NFTs are often viewed as an investment vehicle to purchase crypto art or crypto-collectibles. Still, they’ve quickly become one of the most popular forms of digital sales. Why? It’s simple — they help get your product into the hands of customers who might otherwise not have access to it. Since NFTs are highly portable and can be sent across the internet quickly. They make practical onboarding tools for any digital product. DAOs can use NFTs as keys to get access to token-gated content.
The rise of NFTs has facilitated a new kind of sales channel — more dynamic and scalable than before. NFTs have been used to quickly raise funds for worthwhile projects through the use of token sales.
NFTs are highly versatile, allowing you to buy practically anything on the internet with them. NFTs will enable you to do transactions similar to sales directly from the website where you purchased them.
NFTs as Marketing Tools for DAOs
Modern organizations are looking for ways to increase community engagement.
NFTs are alternatives for building community without raising money through traditional fundraising campaigns or venture capital firms.
Building community around a mission or a product is one way to gain traction, but it can be easier said than done. There are many ways to launch communities, but none have the engagement factor of the thrill of purchasing NFTs. This thrill is even higher for NFT auctions, which encourage multiple bidders to bid on NFTs. NFT owners feel proud of their unique tokens and are more likely to engage with others.
Marketers and marketing practitioners use NFTs to promote digital collectibles and share a story of the evolution of the DAO.
Are your DAO tokens linked to your decentralized organization’s values, mission, or vision? If not, then defining your why will help you and your team use NFTs to drive more return on investment (aka ROI). NFTs are unique assets in that they have a built-in incentive to attract new audiences and engage with existing ones. Marketing campaigns for NFT drops can maximize project ROI and boost community engagement.
As more marketers and teams dive into the world of NFTs, new marketing use cases emerge. These use cases include but are not limited to dropping NFTs, sharing a story around the DAO, or sharing a story around NFTs.
Since KryptoKitties (2017) launch, we’ve seen an explosion in NFTs as tools for decentralized organizations. For entrepreneurs looking to launch decentralized applications (Dapps), NFTs offer an elegant solution for capturing value through governance, equity, and utility.
With NFTs, you can launch marketing campaigns without investing any money in them. Instead of spending capital on advertisements, you can leverage existing NFT marketplaces or platforms to launch cheap marketing campaigns. By being featured on third-party platforms, others are promoting on your behalf. Platforms have network effects similar to how social media networks like Twitter, Reddit, or Facebook get new users.
DAOs who use NFTs adopt a modern approach to marketing. Instead of relying on outdated marketing strategies such as print ads and radio and television ads, NFTs leverage an emerging virtual economy and evolving cryptocurrency to market their products directly to consumers.
For DAOs, time is money. DAOs often spend marketing dollars in the so-called “crypto gap” or media channels that will not reach their core audience. We can help DAOs with NFTs drops and NFT campaigns so they can avoid the crypto gap and maximize project revenue.
NFTs allow DAOs to convert their marketing budget into tokens. Traditional companies spend fiat for marketing. Modern companies pay crypto for marketing. Crypto spend on NFTs converts better to your target audience, eliminating the necessity to convert fiat currency to cryptocurrency.
Conclusion
DAOs are the future of token-driven teams, communities, and brands. NFTs are the future of token-driven collectibles. DAOs can use NFTs to maximize token value, incentivize the community to contribute, and increase project revenue.
DAOs face many operational challenges, from capturing market interest to increasing revenue and growing the community. Thanks to blockchain technologies and NFTs, DAOs have crypto-enabled tools to accelerate community adoption. NFTs provide the financial leverage necessary to fuel DAOs
Originally published at unicornteam.xyz on September 3, 2021.
