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However, many of these dollars have yet to be deployed into the real economy as the result of failed promises from many NFT brands.
The problem lies in a broken stakeholder incentive loop.
Yet we’ll also explore how emerging technologies allow NFT brands, creators, and holders to fulfill those promises, setting a new standard for how Web3 works—and how every stakeholder can make money. It’s a win-win-win.
In this manifesto, we’ll clear up why the NFT community has had a rough history and why NFTs are poised to revolutionize the web and the economy. Let’s get started.
The problem lies in a broken stakeholder incentive loop.
NFTs: A Brief History
In the beginning, non-fungible tokens (NFTs) got their start as pieces of art, which remains the dominant medium of these digital representations. In June 2021, Sotheby’s sold (and was sued over) the first NFT called Quantum, made by artist Kevin McCoy in May 2014, for $1.47 million.
Since then, NFTs have exploded in popularity. This is especially true after late 2021, when daily sales were roughly $6 million in June 2021, catapulted to $100 million six months later, but now rest near a support level of $35 million in June 2022.
Source: NonFungible.com, July 2022
You've heard of the terms web2 and Web3, but what does that mean exactly?
People often don't know other use cases for NFTs beyond digital images of bored apes.
Trading volume and sale prices of NFTs peaked in November 2021. The interesting thing to note is that these trends seem to correlate with bitcoin and the broader crypto markets as well as public equities.
The folks at NonFungible.com have categorized NFTs into five categories: art, collectibles, video games, metaverses, and utilities & finance.
When most people hear of NFTs, they think of the first few categories, but they often don’t know other use cases for them beyond digital images of bored apes. They also don’t know how to buy, access, trade, and use NFTs. We’ll cover this in more detail in a bit.
Correlation of Bitcoin to U.S. Dollar
Source: TradingView, July 2022
Source: TradingView, July 2022
However, the benefit of digital files—art, music, PDFs, and so on—is that they could be copied infinite times, instantly, at virtually no cost. Every file is the same, and it’s hard to tell what the original file was or who owned it.
With NFTs, though, you can create a digital signature in the file’s code to verify that a particular file is in fact the original. You also verify who owns it, when it was created, and so on. Because it lives on a blockchain, that verification cannot be altered. This effectively limits the supply to as many files as the creator wants—1, 10, or 10,000—which creates a market for the good. In effect, by creating property rights for digital files, every digital thing on the planet has the potential to become a liquid market. NFT technology, in other words, “makes the internet ownable.”
It’s like the evolution from paper records to databases. But bigger.
NFTs have been associated with digital images, but in the future it’s easy to see how authenticating the ownership and transactions of digital files can be extraordinarily valuable. Think of medical records, insurance and mortgage documents, bank transactions, resumes, college degrees, identification documents, and so on. These files can be verified and shared instantly without the need for a trusted third party, like an escrow account or financial intermediaries. Imagine most digital files on earth becoming NFTs—the size of the NFT market, therefore, is almost unimaginably large.
The NFT
Value Loop
utility, brand, and adoption.
They mutually affect one another, one driving the next. Utility drives the value of the NFT brand, the NFT brand drives project adoption, project adoption leads to more engagement and excitement around utility, thus driving the value of the NFT brand. It’s a cycle.
Utility
When an NFT creator creates (or mints) an NFT or a collection of NFTs, they often provide perks for those who buy them (called holders). Consider the promises made by a relatively successful collection called Okay Bears. Holders of an Okay Bear are able to access exclusive merchandise as well as in-real-life (IRL) events and experiences.
Utility incentivizes holders to buy the NFT, which incentivizes the creators to grow the community. After all, the size of the community often dictates the size of the market for that particular NFT. A large community also incentivizes brands with a ready and willing audience to market to.
In the sense used in the NFT community, utility is defined as the benefits or usefulness associated with minting, marketing, or purchasing an NFT. If someone buys an Okay Bear, their roadmap says the holder is entitled to access merch, voting rights, tickets to exclusive events, and meet-ups in real life. Other NFTs have other benefits or uses, depending on the creator and the community.
Brand
It’s not just creators who want to build utility into their NFTs but big brands too. Starbucks recently announced that they’re creating NFTs that serve not just as collectibles but “would provide their owners with access to exclusive content and other perks.” Leaders at Starbucks believe NFTs can be an extension of their successful customer loyalty program. The project also adds to their brand reputation of being digitally savvy and innovative.
Adoption
Presently, NFT projects and collectors favor preferred blockchains, wallets, and ecosystems, each with their respective quirks. NFT projects employ a variety of technologies to custom-build marketplace, minting and checkout solutions, all working slightly differently. It’s no surprise that extensive FAQs pepper most Web3 experiences, with conversion rates favoring crypto-natives. Educational campaigns target the crypto-curious as the market forges ahead in the Web3 frontier.
And, as we'll continue to explore, the NFT Value Loop can make or break project adoption via utility and brand.
So, what's the problem?
For many projects, utility promises outpace capability.
Many NFT creators have been unable to make good on their promises largely because of a lack of clarity, practical technology, and a broken business model. But even more than that, the NFT market has been labeled the “wild west” by many analysts. Where profit reigns so too does a seamy underbelly of ill will.
So, before NFTs can do anything substantial, we have to help NFT projects and brands fulfill their promises.
For many projects, utility promises outpace capability.
The Broken Flywheel
Why NFT projects haven't fulfilled their promises
You can see the interaction of brand, adoption, and utility in the NFT value loop. However, multiple problems have made a perfect storm for brands, creators, and holders. For an NFT project to succeed, all parts of the NFT value loop have to be injected with continued value, like a flywheel, while reducing friction for those value injections.
Fundamentally, projects need a way to equip their NFTs with real Web3 utility.
Utility is the focal point of every project, so if there are issues with utility, every aspect of the NFT value proposition suffers. We see at least three reasons why this has been the case.
Reason 001
Utility is broken:
Incentive misalignment
Much of the crypto community’s writings have explored the economics of incentives, and how that’s changed over time from Web1 to Web2 to Web3. Read Andreessen Horowitz partner Chris Dixon’s essay “Why Decentralization Matters” for a good primer.
However, some challenges remain in aligning the desires of buyers and sellers. Think of the market participants involved, starting with creators.
Creators want to create NFTs, but will there be a market for their creations? This is partly why Gary Vaynerchuck, a famous marketer and crypto investor, believes that 98% of NFT projects will fail.
Holders want to buy NFTs, but why? Is it because, for instance, they value the artwork as such? Or is it because they can sell it to someone else later for a profit, validating critics’ claims that crypto is a de facto Ponzi scheme? Or is it because they value the perks they’re promised? But if so, why go through the trouble of purchasing the NFT at all—why not just save or find a more traditional discount? Or maybe it’s because they value the community, but why go through the trouble of purchasing NFTs and avoid other communities that can be found for free through channels like Reddit, Discord, Twitch, Twitter, or even a local, IRL community?
Brands want to be involved, but how do they access these communities without extensive knowledge of the communities or its technology? And what’s their upside exactly? Investing hundreds of thousands or maybe even millions of dollars into a venture with an unknown rate of return will give CFOs a heart attack.
Reason 002
Brands are hindered:
Functional Limitations
It’s true, the inability to deliver on utility hurts a brand’s reputation. But as far as the business model is concerned, brands are hard pressed to generate revenue beyond primary and secondary sales (at least without offending their audience with high royalties), so their primary alternative is just to sell more NFTs.
This has a diminishing effect in that more NFTs dilute the exclusivity of previous holders. In addition, standing up a minting marketplace and coordinating a drop can be hard without the funding or Web3 technical acumen.
Unfortunately, many of the NFT holders that do know how to get into the game get into it for mere speculation. That is, they buy a Bored Ape simply to sell it to someone else later. This practice has led to criticism that crypto is just a large-scale Ponzi scheme or Greater Fool problem. Critics like Charlie Munger have become skeptical or even downright hostile toward crypto and NFTs because NFTs don’t produce any tangible value—they must be traded up to the next fool.
This view is an oversimplification.
For hundreds of years companies and banks have issued scrips, which are certificates to verify ownership of something else. Since then they have held immense value in the holder’s ability to use or trade them. Consider credit card points, gift cards, employee loyalty rewards, coupons, tickets, and many more examples. Some estimate that the global gift card market alone is worth nearly $1 trillion. The employee rewards and recognition market is another several hundred billion.
If NFTs were as accessible and useful as gift cards or employee rewards points, the NFT market would be orders of magnitude larger than that.
Reason 003
Adoption Is hindered:
User Limitations
Decentralization makes marketing visibility difficult. NFT audiences depend on disparate tools like Discord, Twitter, and Reddit to know project details and feedback. And, ask any NFT project coordinator: Onboarding new users to set up a wallet and buy an NFT is challenging, to say the least.
In general, users of NFTs—brands, creators, and holders—have trouble understanding what NFTs are and how to enter the Web3 world. The technology is just so new. It’s like trying to understand back in the early 1990s what the internet was, how to access it, what to use it for, and what it could become.
Nobel laureate economist Paul Krugman infamously predicted in 1998 that the internet’s impact on the economy would be no greater than the fax machine’s.
Polls from YouGov show that only a quarter of US adults understand what an NFT is, but, importantly, that percentage is growing.
Further, some analysts estimate that only about a quarter of Americans own crypto, and a quarter haven’t bought crypto because they don’t know how.
March 12, 2021 — February 10, 2022
Source: YouGov, July 2022
The average person has trouble with advanced technology. In 2020, for instance, while NFT creators were minting collections and trading skins in metaverse games, many organizations were creating webinars for their employees to teach them how to use Zoom. Pew research showed that 26% of US adults “say they usually need someone else to set up a new computer, smartphone or other electronic device for them or show them how to use it.” That’s why one writer in The New York Times said, “Tech forgets about the needs of the 99%.”
The NFT community is asking those people to make a crypto wallet (how? which one?), transact through markets (how? which one?), and collect digital assets (which are what, exactly? and what for?). It’s important that they do, since the larger the community, the larger the market, and the more money that can be made.
These problems have led to major project failures.
Failed
NFT Projects
The broken flywheel can be observed by some of the more infamous failures of the crypto community. You can read about many of them in mainstream media as they pop up. Here are just a few examples.
Celebrities have spent millions marketing their NFT collections, but with terrible returns to holders. Chris Brown’s Breezyverse sold only 297 of the 10,000 NFTs, or 3%, of the total collection. Logan and Jake Paul’s NFT collections’ floor prices plummeted 62% and 98%, respectively, at the time of this CoinTelegraph story.
Others have sold out, creating huge successes from their drops. Yet they too ran into trouble when that success soon faded due to slow implementations and limited utility.
Logan Paul’s collection CryptoZoo to US Dollar
Source: CoinMarketCap, August 2022
Some NFT projects have sold out, creating huge successes from their drops. Yet they too ran into trouble when that success soon faded due to slow implementations and limited utility.
The Challenge for the NFT community
And ultimately, how does everybody get a return on investment? We believe these stakeholders need an engine to align, incentivize, and build value for the future of NFTs.
Why utility will lead to the next era of NFTs
In August 2019, an influential group of business leaders known as the Business Roundtable redefined the purpose of a corporation to one that creates value for many stakeholders, not just shareholders. In a sense, NFT utility provides value for many stakeholders in the NFT ecosystem, not just holders of valuable NFTs.
The concept of utility is where the economics of creativity become realized. Until now, many of the stakeholders in the NFT community have been unable to gain economic value from projects. Without that incentive mechanism, many projects have simply failed to live up to their hype.
If we can address this challenge, we can create economic value for the three primary stakeholders.
Providing value to every stakeholder
Brands
First, a brand can build an audience by minting NFTs or by providing perks to NFTs that already exist, partnering with their creators and communities. Minting NFTs has been difficult for many companies to do, since it requires new skills and technologies that many employees at those organizations may not have. Partnerships are easier to pull off, but again the practical and economic mechanisms for these transactions to take place have so far been non-existent.
Build an audience, target that audience, and improve customer loyalty.
With these benefits it’s easy to see how Web3 utility provides a transformative marketing channel.
With these benefits it’s easy to see how Web3 utility provides a transformative marketing channel.
Creators
But it’s much harder to sustain that excitement and community engagement. It’s also hard to sustain recurring revenue over time, forcing the creator to continually mint new NFTs. This has the unfortunate side effect of diluting the exclusivity and therefore the value of the first drop.
Utility solves many of these problems.
First, by connecting all the stakeholders in a networked utility ecosystem, creators gain a larger audience and more channels to market to, all of which increases the project’s value.
Second, utility adds recurring revenue streams by partnering with brands and merchants, diversifying income through multiple channels, and lowering costs since creators won’t be required to mint new NFTs to make money.
Third, utility provides ongoing community engagement with the benefits of utility itself.
Utility solves many of these problems.
Holders
Why Utility will lead the next era of NFTs
You might call it an engine.
In fact, we do.
Introducing
How Utility Engine™ Solves the Problems with NFTs
Step 01
Fix the loop
Custom Service
Loyalty Rewards
Commemorative Tokens
AMA
Early Access
Allowlist Access
Livestream
Event Tickets
Metaverse Gear
Single-use Coupon
Discord Access
Roadmap Voting
Airdrop Raffle
@ Mention on Twitter
NFT Pack
Collaboration Preview
Custom Service
Loyalty Rewards
Commemorative Tokens
AMA
Early Access
Allowlist Access
Livestream
Event Tickets
Metaverse Gear
Single-use Coupon
Discord Access
Roadmap Voting
Airdrop Raffle
@ Mention on Twitter
NFT Pack
Collaboration Preview
Step 02
Feed the Flywheel
Creators can garner more value by harnessing utility, and engaging with community and brands. A new channel of value engagement can activate and thrive.
Let’s go...
Supercharged Functionality for utility
- Any NFT on any blockchain
- Utility marketplace
- Rarity Layer
- Sponsorship
Supercharged Tools for brands
- Easy marketplace setup & checkout
- Recurring Web3 Revenue Creation
- Explore and Learn with Tronic Studios
- Storytelling and experience is more important than ever in building strong brands, and consumers want to be a part of the brand’s story.
- Web3 powered brands better incentivize and activate consumers.
- Brand pain points solved by Utility Engine
- How do I make money with Web3, blockchain and NFTs?
- How can I successfully engage with Web3 audiences?
- How do I find my radical buyers and brand champions?
- How can I effectively partner with other brands on and mutually benefit in a sustainable way?
- How can I (fix and) leverage utility to drive ROI and increase CLV?
- How do I make this all work together easily?
Supercharged User Journey for Adoption
Introducing, Checkout3™. The easy and secure Web3 checkout experience everyone deserves.
- Easy crypto onboarding
- Easy Web3 checkout (pay with credit card)
- Utility marketplace visibility
- Consumer pain points solved by Utility Engine
- What does an NFT actually do?
- Why buy an NFT?
- How do you buy an NFT?
Step 03
Form the network
With Marketplace3™, communities and brands connect in sustainable value exchange loops. Brands, creators, and holders agglomerate toward these individual economies, they can capture the value from other flywheels, incentive loops, and network effects to grow into an entirely new networked NFT economy powered by utility. And we’re not the only ones it’s happening with some of the world’s most exclusive brands.
All in an entirely new kind of network
- Drive utility and revenue with sponsorship.
- Drive sponsorship with adoption rate.
- Drive adoption rate with network effect.
- Drive network effect with
