HOW NFT CREATES VALUE (4)

Building on this phenomenon, a few well-known brands have recently introduced NFT series that serve to identify, reinforce, and expand their existing communities of brand enthusiasts. The popular streetwear brand The Hundreds, for example, has built an NFT project around their mascot the “Adam Bomb,” and directly rewards their community of NFT holders with improved access to the brand through connection with the founders and early access to new product releases.

Many emerging NFT applications, meanwhile, are seeking to more explicitly blend online NFT ownership with offline use cases. A few restaurants, for example, have started using NFTs for reservations. And the ticketing industry has a major opportunityhere: By issuing tickets as NFTs, venues can give a variety of benefits to purchasers, creating more of an incentive to buy, as well as providing the venues an opportunity to collect royalties on secondary sales.

Other companies are exploring how NFTs could be used in establishing and recording people’s identity and reputation online. MIT recently started offering blockchain-based digital diplomas, which are effectively non-transferable NFTs. Meanwhile, both established players like Facebook (now Meta) and new ventures like POAP and koodos are providing ways for individuals to create and share NFTs around activities, affinities, and interests.

How These Businesses Can Succeed

Like all other businesses, each NFT project has to respond to a real market need. But there are unique challenges to building in the NFT space:

These ventures must make meaningful use of the NFT technology itself.

It’s not an accident that so many of the early NFT projects are built around digital rights management, since that’s one of the most direct applications of the technology. Club membership benefits for NFT holders fit in naturally as well, since a given NFT holder can certify their right to have access simply by pointing to the token in their crypto wallet.

But NFTs make less sense when there isn’t a purpose to digital ownership, such as for managing physical collectibles, where people presumably want to receive the objects themselves. (Unless, of course, they’re too heavy to move, as in the case of a recent NFT for a 2,000-pound tungsten cube.)

NFTs also have to leverage a community of users.

Like with any new product, early adopters serve as product evangelists and a source of early feedback. But with NFTs, these users also serve an even more essential role: Their decision to embrace the NFTs quite literally imbues those NFTs with their meaning and establishes their initial value.

Without a robust community of users, NFT projects can fail to get off the ground, or can quickly collapse as all the token-holders lose interest. And this means that if an NFT project doesn’t make its value proposition clear enough at the outset, it can fail to recruit a big enough community — or the right community. Lack of engagement can then become a self-fulfilling prophecy, devaluing the NFTs themselves.