Five New Frontiers for NFTs

NFT art volume shot up to over $200M in March this year on some of the largest marketplaces, only to fall 50% in April. To detractors, this is the “end of NFTs”. However, art is the tip of the iceberg and we are rapidly seeing new use cases for NFTs.

Creator tools have become more robust. What took entire developer teams to implement are now commoditized features across NFT minting platforms. Platforms now provide an interface for creators to dictate rarity, auction mechanisms, and royalty percentages from secondary sales across Ethereum, Flow, Tezos, NEAR, and more. NFT supply increased because of easy-to-use creator tools.

Now, rather than easier and better ways of creating NFTs, there are interesting emerging ways of using NFTs. This article highlights five new frontiers for NFTs:

NFTs are keys to exclusive content & opportunities

Today, creators use NFTs and social tokens to directly monetize their fanbase. These NFTs and social tokens give fans exclusive access to content, opportunities, and a direct way to invest in their favorite creators. In the future, we will see experiments where NFTs and social tokens interact and the rise of crypto-native forms of Patreon, Substack, and OnlyFans.

Specific examples today:

• Rewarding early supporters with revenue: With “Infinite Players”, Jack Butcher created an NFT that shares its revenue with everyone who has supported his previous NFTs.
• Rewarding early supporters with exclusive access to content: 3LAU gives his users exclusive access to unreleased songs or new opportunities to engage with him. To qualify to purchase some of the pieces in 3LAU’s latest sale, users need to own previous 3LAU NFTs. Similarly, Aku, an astronaut character created by Micah Johnson, has NFT drops that are only accessible to people who were patrons of previous drops. Creators use these mechanisms to reward early supporters and create utility for their NFTs.

Predictions:

• Decentralized Patreon: Decentralized, crypto-native Patreon will not look like Patreon today, where fans suscribe for content. Creators will use NFTs and social tokens to create an economy around their communities. Creators using new platforms will seamlessly (1) sell NFTs, (2) gate access to content and pictures based on NFT or social token ownership, (3) stream payments to themselves in real-time based on the types of access tokens their fans own, (4) distribute revenue from NFT sales back to their community based on active members who have contributed. We will see more interesting experiments where NFTs and social tokens interact, like NFT drops that can only be purchased with that creator’s social tokens, or NFTs that give fans access to airdropped social tokens later. Social token platforms like Roll, token-based community management platforms like Collab.Land and Mintgate, and payment streaming services like Unlock and Superfluid will all play a part in new decentralized Patreon use cases.
• Shopify for NFTs: Current NFT minting platforms follow the Amazon model and highlight products, not creators. New NFT platforms may follow a creator-forward model that allow creators to make their own branded stores to sell NFTs. Some platforms that allow creators to make their own stores recently emerged like Mintbase and DAORecords.
• Enterprise NFTs for large brands: Today’s biggest brands like Adidas and artists like The Weeknd use NFT minting platforms like NiftyGateway to sell their NFTs. As NFTs become a bigger part of their strategy, enterprises will want their own branded NFT platforms.

Rather than passively consuming content, fans now create content

The line between fans and creators will blur. Fans will create rich worlds for NFT characters and change NFTs based on what they wish to see individually or through a Decentralized Autonomous Organization (DAO). Fans will no longer be passive consumers. The biggest fans will be part of the creation process.

Specific examples today:

• Communities that build tools for NFT collectibles: Meebits are collectible 3D characters created by the Cryptopunk team and they already have community members who build tooling for it, like guides around how to convert Meebits into metaverse avatars. Some members even formed DAOs like MeebitsDAO which creates the tools and plumbing to enable Meebits as digital avatars in the metaverse. Similarly, Axie Infinity created collectible characters called Axies and the community can create their own games that incorporate these characters.
• Collectors who can change the NFTs they own: AsyncArt is an NFT minting platform that created programmable NFTs and music. By owning a piece of NFT music or a part of NFT music, collectors can alter it to make it uniquely their own.

Predictions:

• NFT Remixing: Fans can take NFT music, art, videos, fiction, and more and “remix” them to create new NFTs while giving royalties back to the original creators.
• Fan-created worlds: The most popular characters will become NFTs that can be put into fan-created environments. Fans will be able to create games for their favorite characters, enable metaverse support so they can walk around as their characters, or even put characters into new creative works like movies, fiction, music, videos, and more in a way that gives earnings back to the creators. Artists are already creating NFTs with world-building in mind. PUNKS comic has created comics with Cryptopunks. NFT holders can stake or burn their NFTs to get $PUNKS tokens that represent a fractional share of the Cryptopunks used in the comic.
• Fan who can change NFTs: Fans will be able to individually or collectively determine how some NFTs look and sound. For example, fans may be able to own Taylor Swift’s album cover art and change the background. As NFTs become part of worlds like games, movies, or comics, fan collectives may be able to vote on storylines or how certain NFT-based characters behave.
• Ownership & Revenue Dispute Settlement: On-chain disputes will arise as NFT creation becomes more common and complex. Creators who collaborate to create NFTs may dispute revenue distributions and ownership percentages. Some creators may create the same NFTs on multiple platforms. Others may change the metadata on NFTs. Upshot is a platform to appraise NFTs, and more protocols will arise to verify the authenticity of NFTs, investigate minting fraud, and settle other on-chain disputes.

NFTs that uniquely identify past actions & allegiances

People will earn non-transferrable NFTs like “badges” based on actions they’ve taken. The NFTs that people own will be a unique fingerprint that identifies them based on their past activities. This reputation history will be used as an on-chain identity to unlock new opportunities.

Specific examples today:

• Proof of Past Action: Uniswap now gives users NFTs to prove their position. Reality Cards is a prediction market that lets the biggest position holder on both sides get the outcome as NFTs, letting users build a betting history. POAP is a protocol that enables event creators to give out “Proof of Attendance” badges. Bankless’s community calls give out NFTs to prove attendance.
• Proof of Membership: Orca Protocol gives out NFT-based membership to working groups like a grants committee for a governance protocol. These NFTs can be used as credentials to unlock on-chain permissions or activities, like the type of budget members can command.

Predictions:

• On-chain reputation: Applications will use NFT ownership as a quality signal for users. Users who own specific NFTs will be deemed high signal users and will have early or unique access to the latest applications. For example, users that own certain Uniswap NFTs may signal that they are liquidity providers. Some defi protocols will enable early access or higher spending limits for users who own certain NFTs.
• Communities that reward NFTs based on contributions: NFTs may be given to community members based on their contributions. For example, specific NFTs may be awarded to the community member most active in governance, the top code contributors, or community members most active in the comments, etc.
• Governance seats dictated by NFT ownership: Users may only be able to join a grants committee if they have an NFT proving they’ve allocated funds in the past, or that they’ve been active in governance protocols. The “roles” in Discord servers may also be based on NFT ownership.
• NFT-based credit scores: If users receive an NFT for being a good citizen in a lending protocol, then lending protocols may give them better lending rates. If users are bad citizens, they may receive a badge labeling them as such. NFT ownership may be used to determine credit worthiness.

Platforms to find, discover, and organize NFTs

Like websites in the 1990s before Google, NFTs are a new type of data without easy search and discovery. Powerful platforms will emerge that curate, organize, and recommend NFTs. Furthermore, as NFTs form the basis of on-chain reputation & identity, we will create social networks based on NFT ownership. Social signals will be a big part of the features we use to organize NFTs.

Specific examples today:

• Social networks based on NFT ownership: Showtime is an Instagram-like experience for NFT owners and creators.
• NFT curation and search platforms: Traditional web platforms like eBay are now supporting NFTs on its platform, which will become a way we search and find NFTs. Numerous crypto-native NFT marketplaces exist from general marketplaces like Opensea to curated experiences like Foundation to marketplaces outside of Ethereum like hic et nunc, Mintbase, and Paras.id. There are great resources that offer a more complete enumeration of NFT marketplaces like this one by Sean Bonner or this one by Tech Optimist.

Predictions:

• LinkedIn of NFTs (idea credit: Cuy Sheffield): As we earn non-transferrable NFT “badges” through past actions like attending events, voting in DAOs, or providing liquidity in defi, social media platforms will develop based on the badges we accrue. We may see the LinkedIn of NFTs where our resumes are simply visual reputation display spaces that show past contributions. People may be identified and recruited based on their non-transferable NFTs.
• Search engines for NFTs (Amazon, Etsy, etc.): We may see more product search engines for NFTs. Amazon and Etsy both already have many shop owners that sell collectibles, and in the future these platforms may support NFT product search. Existing NFT marketplaces like the ones outlined above will also evolve sophisticated search, discovery, and recommendation features.

NFTs are financial assets

NFTs express ownership in assets that can be used in financial transactions. There are many new mechanisms for NFTs such as revenue “splits” or NFT fractionalization that make NFTs more useful as financial assets. In the future, we will see the exponential growth NFTs as financial assets.

Specific examples today:

• Fundraising for charities and public goods: Creators and artists can raise money for charity through auctioning NFTs. Organizations banded together to create on-chain funds to fund public goods. NFT creators can pledge part of their NFT auction earnings to funds like these and proceeds will automatically pay out when the NFT is sold. Now, when NFT creators want to raise money for a certain cause, there can be full transparency behind where the money goes.

• NFTs are interchangeable through fractionalization: NFTX enables users to deposit an NFT into a pool and mint an ERC20 token. B.20 is a fractionalized “bundle” of NFT art by Beeple. $WHALE is a token that represents a fractionalized pool of 13,000+ NFTs originally owned by a pseudonymous collector named Whaleshark. Rats Vaults allow users to deposit any NFT and receive a token in return (kicker: there are special vaults for holders of a specific social token called $FWB). Minting interchangeable tokens against NFTs is a step function unlock because the tokens can be used to earn yield with defi protocols, improve price discovery for NFT projects, and make NFTs more liquid because they can be swapped through an automated market maker (AMM). Members of these fractionalized pools may have special rights like the ability to vote on buying and selling the assets in the pool, the ability to rent the NFTs that are part of the pool, the ability to collect dividends on yield-generating NFTs within the pool, and more.
• NFTs issue “dividends”: Collectors can get new assets based on the NFTs they own. These “dividends” can be issued in an informal way. For example, some collectors receive airdropped, new NFTs from artists because they own well-known NFTs and artists want to promote their work to these collectors. “Dividends” can also require active participation, like when Meebits established a mining process that allowed new Meebits to be redeemed by Cryptopunk holders. “Dividends” can be the direct issuance of revenue earned by NFTs. For example, Yieldguild is a collection of DAOs that purchase NFT gaming assets (e.g. Axies in Axie Infinity) and then lend them out to players so they don’t need to buy assets upfront and earn income from playing these games. More yield generating NFTs are coming down the pipeline, such as Aito announcing an NFT integrated with Aave.
• DAOs that purchase NFTs as investments: PleasrDAO recently purchased Tor’s NFT for 500ETH. The DAO was first created to purchase the work of artist pplpleasr. FlamingoDAO, Whaleshark, and many other DAOs invest in NFTs.

Predictions:

• Generate cash flow with NFTs: Soon, NFTs may earn revenue. One way NFTs may generate revenue is through rent on land rights. For example, landowners in metaverses like Cryptovoxels may charge rent from those that use their land. Today, Cryptovoxels land owners can add “collaborators ‘’ who can build on their land, but do not own it. In the future, there will be smart contracts that landowners and tenants can use to specify rent, rental duration, and other terms. Another way NFTs can generate revenue is through ownership of music rights. For example, music masters may be NFTs that earn income every time songs are streamed. Communities of fans may band together and purchase the music masters of their favorite musicians. The beginnings of this use case already exist today: individuals are renting out their cryptopunks, platforms like reNFT are experimenting with letting individuals rent NFTs, Varda is experimenting with staking funds used to purchase NFTs to generate yield on NFTs, Charged Particles lets users represent a basket of ERC20s as an NFT and earn interest on the basket.
• Fractionalized NFTs that plug into the defi ecosystem: Once we fractionalize NFTs into interchangeable tokens like ERC20s, we can use these tokens with existing defi protocols. These tokens can be swapped through AMMs, put into lending pools, and much more. For example, users can fractionalize a collection of NFT art by issuing ERC20 tokens, and then swap those tokens through Uniswap. Defi protocols may evolve features to optimize for fractionalized NFTs, or new defi protocols may appear. Platforms like NFTfi already allow users to take out loans with NFTs as collateral.
• Impact NFTs: Artists can give a percentage of sales from their NFTs to certain causes in perpetuity, even after death. Creators may create “impact NFTs” specifically to support environmental or social causes.
• Pre-token fundraising: Projects that have not yet launched a token can issue NFTs to reward their early supporters. Once their tokens launch, they may airdrop these tokens to NFT holders.

These ideas only scratch the surface for what’s possible with NFTs. Two key developments in the near future will create an explosion of new NFT use cases we haven’t seen or imagined:

1. New types of assets represented by NFTs: At its core, NFTs are a generic mechanism and can express ownership over anything. So far, we have mostly used it to represent visual images and gifs, crypto-native games, and music. New types of assets will create new use cases. These assets may include game assets from traditional game developers, writing (already emerging through Mirror), movies and video, sports figures, physical goods, real estate, characters from classic brands like Harry Potter or Disney, pools of assets (already emerging through Charged Particles), and many more.
2. Low transaction costs: NFT use cases today mostly exist on Ethereum, so they operate under the constraint of high transaction costs. When it can cost $50+ to mint an NFT or to transact, use cases can be limited. As a result, we mostly see NFTs as luxury art products today. However, layer 1s like NEAR, Tezos, and more make it possible to mint and transact under a cent. Without the constraint of high transaction costs, developers and creators will create new use cases for NFTs we haven’t even imagined, yet.

If you’re working on new ways to use NFTs, I’d love to hear from you and participate in what you’re building!

—

Disclosure: Electric Capital is an investor in some of the protocols mentioned in this article.