by Nick Metzler | 12 Jan 2022
Industry Commentary, Op-Ed
The hype is relentless. Mere months after you first heard about NFTs, it seems like you’re already behind. Pepsi has released profile picture NFTs. Adidas has released ‘metaverse’ NFTs. The NBA has Top Shots (and those will be big). Brands are making millions shilling JPGs and now your boss wants an answer on NFTs. Are they here to stay? Are we prepared for this metaverse thing? (Metaverse is a decade away, don’t worry)
You’ve heard that NFTs are like ‘digital collectibles.’ “Great” you think, “we’ll just pair it with our physical collectible line, give ourselves a pat on the back and call it a day.” Kaboom, our brand is in the metaverse.
Not so fast.
For bias reference, I’m hyper-bullish on web3 and NFTs. And I’m preaching caution. That should be your first red flag.
Almost all new technologies follow the Gartner Hype Cycle. In the beginning, a new technology is rocketed up into the public consciousness with eye-popping results (financial or otherwise). This is the Peak of Inflated Expectations. After the first huge wave of investment and bullish early adopters, comes the Trough of Disillusionment where It crashes down to earth for everything that isn’t market-ready, or just doesn’t hold a lot of value. In this bear market, when everyone thinks you’re crazy, you build with the real innovation during the Slope of Enlightenment until you make something sustainable in the Plateau of Productivity. Or just acquire at that point if you’re loaded.
NFTs are currently at the Peak of Inflated Expectations. The pictures that are selling for millions of dollars may crash to 0 in the next few years in the eventual Trough. But don’t blink, NFTs are here to stay. The ones with real value (utility) will stay, and will transform our world through new business models.
Back to you and your collectibles line. Here’s a quick question to ask yourself: Can I execute this strategy without NFTs?
There’s a TON of brilliant tech out there, and you can create incredible value without putting the words NFT or metaverse in your pitch deck. Can you do it through a database hosted on your website?
If you pass that first test, ask yourself, why are you really doing this?
Are you doing it for money?
Great, NFTs are superb for speculation. Just be prepared for the deluge of anger from your buyers when the Trough comes. People who are in the crypto world know that all this could drop 90% in an instant (it’s happened), but new customers who have never bought an NFT before don’t know that. Otherwise, shill the hell out of your product and take the money from those silly enough to buy your JPG.
Are you doing it because it’s trendy?
Great, you’ll likely make a bunch of money quickly. Or you’ll stumble through the process for a year before you’re confident enough to pull the trigger so it doesn’t end up an absolute train wreck, but then it’ll be too late and you’ll have missed the trend. Things move at light-speed in web3. Months are years. The next trend of NFT usability will materialize faster than a new TikTok challenge. Everything is open-source in web3, so exact code copies with 1 new innovation is common. This industry wide process drives the speed and the speculative value. (And sometimes tanks the previous innovation’s prices)
Are you doing it to bring your brand into web3?
Great, do you know what that means? Web3’s main calling cards are financializing everything and reformatting ownership so customers own the ecosystem. That gives you less control and less profits; it’s now possible to build ecosystems like this with pure digital offerings because COGs are near 0. If you guarantee physical products with it, or continued support, it could drive you into the red. Of course, you could always sunset the support and break trust.
Are you doing it to build a community?
Great, just know the difference between an audience and a community. An audience is what most brands have right now. Audience is social media. It’s two-way where the brands talk to the consumers and the consumers can talk back. A community is being billed differently – the consumers WANT to talk to EACH OTHER with or without the brand present. What are they going to talk about? How will they engage with each other? Are you going to build an experience with them? Do you want their consistent feedback? Can you hire the most passionate as freelancers? Maybe highlight top ideas and push them out on socials?
Other thought starters:
If you’re targeting kids with your NFTs, you’ll be one of the first. But do you really want that PR nightmare when kids are buying and selling real assets? It’s no longer just a toy, it’s a financial product with embedded smart contract code that very few adults understand. Be careful. There will be regulation coming. You don’t want to be the lightning rod. Or maybe you do? All press is good press, right? Right…?
Very few people have web3 wallets. You’ll spend a TON of time educating newcomers if you want to appeal to mass. Try explaining how to create a website to your parents/grandparents to see what I mean. In addition, there’s no universal standards yet. ERC-721 is the front runner so far, but this can change. Maybe ERC-1238 will erupt in a big way with non-transferrable NFTs. Maybe ERC-1155 with semi-fungible non-fungible tokens. Wait a couple years for standardization when more people have wallets. Maybe your community can help the newcomers learn the ropes?
When you launch your shiny new NFTs, how are you going to do it? If there’s a public mint, you can guarantee that your site will be deluged by bots attempting to scoop up as many as possible. Imagine a super hyped concert where everyone wants tickets. That’s what it’ll be. There will be bugs. It will be intense. I recommend building a whitelist first.
Some people out there are crypto rich. They’ve been in since the beginning and now have oodles of money that is re-pumped into the ecosystem as they buy NFTs. They’ll scoop up 10 or 20 of your NFT drop to try and get the best versions from your random loot box, then sell the rest at below-value price on Open Sea to recoup their investment. If you limit them to 1 or 2 mints, they’ll just set up bots to get the rest. There is always a hacker (global) who knows the loopholes better than your tech team (local).
Some unscrupulous actors will take advantage of consumer’s lack of knowledge and post fake NFTs that are near-exact copies of your NFTs on secondary channels like Open Sea. Your customers may get scammed through no fault of your own.
There’s no rules except for code, no help except for your friends, and no cancellations except for hard forks.
Ok now that you’re sufficiently scared and ready to trash your NFT phygital collectible strategy, listen up for some red-hot harbingers.
NFTs are smart contracts. You can code them to do incredible things. All of the following are already possible. Maybe the NFTs change based on what other NFTs are in the user’s wallet. Maybe you can airdrop real money into any NFT holder’s wallet as a dividend on profits. Maybe each NFT can act as a virtual monster that increases in power each time consumers buy a product from your site using their wallet. Maybe you can change the art or utility of the NFT every time you launch a new product, which can be seen from their wallet.
NFTs get their value from the issuer’s promises of goods or services in the present or future, or from community knowledge/valuable information, or from social proof (culture). The first person to own the NFT could create huge value for your collection if they’re famous or important to the brand’s history (social proof). If you want your NFT or community to have increasing value long term, you will need to ensure that one or more of those three continue to grow over time.
There’s an adage that goes something like: If you want to go fast, go alone. If you want to go far, go together. Web3 allows you to build product together with your fans. And they could get a piece of the profits if you want. Talk about attention on steroids… but most people just want to buy products and be done with it. Can you appeal to both while going fast? But wait, public corporations are beholden to shareholders, how does this interact with the priorities of token holders? Grey area.
NFTs can act as a sellable lifetime ticket to your community. How much power do you want to give them long term? Voting power (governance) is a common aspect of tokens and NFTs. What would happen if someone scooped up a majority of the votes or colluded? You can’t control that after launch because it’s decentralized… figure it out beforehand, or just count on the community being positive like everyone is doing now.
NFTs will be shown off in wallets as a badge of honor. You’ll be able to see everyone’s badges next to each other. Great market research, all public. Facebook on steroids with no one to stop it. I’d personally rock a Pokemon Master badge if I had that when I was young (still would though). Probably would have been bombarded with Digimon or Bakugan ads as a result.
Most NFTs will be forgotten to time. Yes, they’re permanent, but this was the same argument when posting on social media came around. Do you remember what you posted 10 years ago? Does anyone care? Use the same principles for NFTs. McDonald’s is now hoping for this outcome. If they hadn’t made such a big deal about it, their NFT fiasco probably would have been lost to time, but now they’re highlighted in this article. Click the link, it’s worth it if you wanna laugh at a dumpster fire.
Since you made it to the bottom of this article, here’s an action step. Check out POAPs. They allow you to dip your toes into web3, and show you which of your fans are in web3. They don’t need to have utility because they usually track attendance at events, but you can activate against them in the future because you know who has them. In addition, you have complete control over who gets them to begin with, and because they’re technically worthless, they’re perfect for running tests. In addition, the POAP site will take all the complexity out of all this crap so you can just give out these virtual badges for free for attending any event you want.
We’re headed towards a future of communal ownership, exclusivity of communities, and markets for everything (almost everything). This will be a big shift, as big or bigger than the internet. This shift will happen over the next several years, similar to the penetration of the internet, but a bit faster because we already have the internet to discover this new upgrade.
One of the biggest wins for web3/crypto is the virtuous flywheel inherent in the technology. Everyone who knows about web3 wants to share knowledge and bring more people (and money) into the ecosystem because everyone already in it benefits whenever newcomers join. As a result, the community is SUPER friendly and will invariably start gushing about it over holiday dinner, much like how vegans and gluten free converts were a few years ago.
If you want to learn, now is the time. Everyone wants to teach. Most people don’t know the risks though. Might be better to be a skeptic in this environment, come with questions to grill the shillers. Pro tip: never respond to DMs in Discord from people wanting to give you free crypto. Just like those banner ads that gave you free vacations, remember those?
If you want to build, the Trough is the time. I’m looking forward to it. The Trough happens when media turns super bearish and everyone’s perspectives are locked in until a breakthrough hit.
My name is Nick Metzler. I’m a freelance game designer specializing in innovation. If you’d like to learn about the opportunities in this rapidly evolving space, reach out to me and we can set up a consultation where I answer as many questions as I can. Or just hire me for game design and you might get NFT stuff for free. This space is going to get more complicated quickly – you may want to learn the basics with me so you can filter out the BS when you hear it.
Please note, I am not a financial advisor so I will not discuss crypto investment ideas such as buying into CryptoPunks like Visa did, but I will tell you some of the reasons they did it, so you can decide. Full indemnification below.
I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer, nor any certification of crypto. The contents in this article are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. By responding to this article, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information found in this article.
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