Written by Branyce Wong
The past year will go down in history as the watershed moment for the global craze of non-fungible tokens (NFTs). But believe it or not, NFTs are not just about the jpegs.
The rising utility of NFTs has unlocked new paths to digital ownership, community access and social utility, royalty/reward distribution for supporters, and countless other perks that demonstrate the vast potential for NFT technology. And the craziest part: we're only just beginning to scratch the surface.
Creating Value for Digital Assets
Most people see NFTs as having value due to their “non-fungible” aspect, aka their ability to imbue digital assets with provable scarcity, authenticity, and ownership. However, as the NFT space becomes more and more saturated, critics and naysayers won't miss an opportunity to call out their lack of real market value (#rightclicksave #screenshot). In many cases, yes, the price of NFTs is arbitrarily assigned and extremely subjective. Yet, this isn't much different than art in the traditional world which is also extremely subjective and based on intrinsic value. NFTs, like all other forms of art, have perceived value which is ultimately tied to the creator's view of its intrinsic value and to the collector’s view on the "community" surrounding it, the artist’s personal brand, and on the asset's scarcity, marketability, and future potential. At a high level, the only real difference is that NFTs are widening the art market to include digital mediums.
Yet, in recent months, we've seen enormous innovation in the NFT space, both socially and technologically, as creators have implemented new methods to give NFTs increased utility. Many communities have collectively acknowledged that the contemporary approach of assigning arbitrary values to digital assets is not sustainable for the long haul and have brought in new merits to NFT holders based on perks, rights, opportunities, and access points.
As a result, the concept of NFT utility was introduced.
The Rise & Breakdown of NFT Utility
There’s a growing movement for NFT creators to make their NFT usable in numerous ways such as creating different kinds of intrinsic value propositions for them on top of their usual collectability and scarcity. Holding a token, for example, may grant you access to unique experiences, early access to products, memberships to members-only virtual and real-world events, or dividends. Essentially, creators, developers, and the NFT industry have started to integrate redeemable rewards and membership NFTs to build and support communities, giving holders access to a myriad of activities on top of their digital asset purchases. Once users receive these privileges such as joining an exclusive community with fellow creators and collectors, they can participate in a more immersive experience than ever before.
Different types of NFT/Digital Art Utility
Staking and Farming
This emerging concept refers to earning passive income within the crypto space by receiving staking rewards such as an annual percentage rate (APR) from your NFT's perceived value. A multitude of factors is evaluated to determine your NFT’s worth including its level of rarity, the ability to generate continuous income, and its attraction towards investors. Mobox is a prime example of a gamified NFT farming platform. It empowers users to engage in gaming by combining certain NFTs and entertainment in a play-to-earn ecosystem. Users can earn a passive income by completing tasks within the game and participate in liquidity mining by staking NFTs to earn various rewards. In addition, those who collect rare NFTs will increase their potential in earnings.
An NFT could be used as an event access pass, similar to an event ticket. Since blockchain technology allows for easy ownership tracking, the unique tickets are verifiable to grant entry to different exclusive events from holding the NFT. This concept expands to other sectors such as Discord for exclusive channel access, music platforms for songs that didn’t qualify for an official album, unshared podcasts, and more.
The event access utility coincides with Autograph.io, a NFT platform co-founded by Tom Brady that combines iconic brands with legendary athletes and their valuable collectors together. Their marketplace allows users to purchase iconic one-of-a-kind collectibles and gain entry to exclusive events and experiences including private communities on discord for Autograph holders.
Similar to event access, priority access includes being eligible for free mints, presale spots, and early admission opportunities (whitelists) to other projects. These are perks that other users or non-holders would not be eligible for. Simply by holding an NFT, you are granted priority to a variety of additional proposals being released.
An example of this is the 888 Genesis pass. This project offers numerous priority benefits to the 888 inner circle holders such as early mints, free mints, free airdrop rewards, and access to all future 888 drops before the rest of the public is eligible.
Redeemability is another form of NFT utility that is gaining popularity. The bearer of a redeemable NFT can exchange it for either a physical or digital good. For instance, RTFKT, a leading brand creating virtual sneakers and collectibles, collaborated with crypto artist Fewocious to bring a never before seen experience where specific NFT owners were eligible to redeem a pair of physical sneakers. The drop included three physical sneakers corresponding to three different NFTs. A link was emailed to the collector 6 weeks after the drop for them to enter in their shipping information to receive the physical sneakers, giving them two assets that would likely go up in value.
Voting Privilege for Governance
A decentralized autonomous organization allows people to make decisions as a community. For example, if you’re holding a certain NFT you get 1 vote or if you’re holding 3 tokens you are allowed to have 3 votes. This gives privilege to people who own the utility NFT where not one leader or a single point of failure will occur but the community with aligned incentives can make a decision towards certain aspects of the organization.
CryptoKitties, an Ethereum blockchain game, has allowed for breeding between 2 NFTs to create a new NFT/kitty. This takes traits from each kitty from differing or the same generation to fill and produce a new baby kitty. Axie Infinity, the Pokémon Inspired blockchain game has this utility with a corresponding model as well. Users can produce new Axies by breeding two existing ones. The new Axies can then be sold or traded within the gaming marketplace.
Various projects offer free airdrop incentives for members to hold their NFTs long term. ‘Companion’ drops are common perks for many PFP (profile pic) projects, which offer you a second free NFT to go alongside your initial mint. These often come after holding it for an extended period of time throughout the roadmap. Some airdrops are completely free and others are a ‘free claim,’ meaning the collector must still pay the gas fees to claim it.
Other forms of airdrops can be received as tokens where a number of projects will drop an ERC-20 token to all holders. An example of this could be the Rare Ghost Club or SupDucks, who were given both a companion airdrop and token airdrop just for holding the project NFT. Rewards were tiered based on how many the user held at that point in time, thus the more tokens a user held, the more rewards they were eligible to claim.
Creators of NFTs may receive dividends in the form of cryptocurrency tokens as a method of passive income. The royalty percentage is different depending on the NFT platform the user is utilizing but will give them x% of the total sale price each time their art is resold to a new collector. For examples, artists on Portion receive an 11% royalty, paid out in Portion token ($PRT), every time their work resells on a secondary market.
A business can offer NFTs as a unique fundraising opportunity with a non-profit organization. The brand may auction off 1 of 1 NFTs to their audience while raising awareness for a good cause.
In August, Coca-Cola, the Atlanta-based beverage giant, experimented with this by creating their first series of NFTs to raise money for the Special Olympics International, a sports organization aimed at ending all discrimination against people who endure intellectual disabilities. The collection featured a wearable bubble jacket, suited for virtual worlds, a friendship card, a classic Coca-Cola cooler, and a video of the beverage being poured over ice.
A Combination of Utilities
An individual ape can come at a hefty price of about $180,000, on average or more (at time of writing). Their rise to fame puts them at par with CryptoPunks, some may say. However, unlike Cryptopunks where the NFT is currently just artwork and a subtle flex, Bored Ape Yacht Club has implemented utility into their NFTs akin to having lifetime access to an exclusive members area filled with perks such as events and parties. This includes collaborative member artist projects, the ability to mutate ape NFTs, free airdrops, exclusive merch, voting, and games. Additionally, the BAYC team and their exclusive members voted to generously donate $850,000 to many ape-related animal charities and were one of the first to introduce these types of supplementary functions to the ownership of their NFTs. This brand not only has brought a positive impact, ultimately benefiting those in need, but also has proven to consumers that their utility NFTs bring more value to their money spent.
NFTs seek to combine artwork and utility in order to stand out now that markets are exceedingly saturated with art. A simple digital piece can be accompanied by numerous openings for services and benefits contributing to everlasting NFT versatility in our everyday lives. We have only scratched the surface on the utilitarian function of NFTs. As the crypto space continues to progress at a rapid pace, it is reasonable to believe that more initiatives in the future will further induce NFTs to become a permanent part of our everyday lives.