This is the second part of a two part series digging into all things NFTs. Last week we looked at the NFT market, some data, and its citizens, read all about it here.
Each month I write thought pieces on themes shaping the crypto industry with the goal being to help us all learn a little more about the future. Subscribe and join our growing tribe:
In Part 1 of this series we focused on understanding the market, its depth & characteristics, as well as the demographics and behaviours of its citizens. We concluded the NFT market is huge and rapidly growing, however the majority of activity has been driven by speculation. To be clear, there is nothing wrong with speculation, it is a pillar of human behaviour and tied to our innate desire to generate wealth, however for crypto to go mainstream I believe we need will need two additional pillars - Culture (see Part 1) and Utility.
Utility is the word du jour in crypto… type in #NFTUtility into Twitter and witness the carnage that we have created. Utility is both our sin and saviour - countless projects have promised Utility, yet almost all have fallen short. However, we keep coming back to it with the hope that a project will find the magic formula to unlock mass market consumer adoption.
What exactly does ‘Utility’ mean you may ask? The traditionalist definition is “the state of being useful, profitable, or beneficial”. In Web3, Utility refers to embedded benefits within a token, which its holders can derive use from, in a real-world or digital context. This sounds quite vague because it is - give a man a brick and he can think of 100 things to do with it… so instead of trying to create an all-encompassing definition of token-based Utility, examples will be clearer.
Physical assets as NFTs
I alluded to this in Part 1 - we live in a largely non-fungible world and in the future we will see a swath of physical assets become tokenised. As the name implies, physical assets are constrained by their presence in the real world. This corporeal body is comforting to some (you can hold a piece of gold or live in your house), yet in reality it is a market hindrance and reduces liquidity + velocity as you typically need to see these assets IRL to validate their state and value (as opposed to relying on their metadata).
Let us take rare wine for an example. A case of 1982 Lafite Rothschild will set you back more than $40,000. Those 12 bottles are 40 years old. They are fragile, and the contents within are sensitive to temperature and movement. If you transport them incorrectly, they will be all but worthless. Instead of buying the case and then transporting it around the world, likely to be sold again or consumed, wouldn't it be easier to tokenise each bottle at the point of creation, and then have the vineyard look after them? The tokens could trade on the free market and exchange hands hundreds of times, without the bottle ever leaving the cellar where it was created.
The same example applies for any physical asset - cars, watches, electronics, property. By tokenising these assets under a unified framework, where we trust the history and have all the information required to make a purchase decision embedded within the token, they can more easily be traded, unlocking huge potential liquidity pools and resulting in better pricing & transparency for everyone in the market.
At this moment it is important to point out how this might work in practice, as many critics will scream ‘you can't truly tokenise a physical asset!’. Physical asset tokenisation requires there to be only one version of the asset in circulation at any point in time, so that there is only one source of truth - either the physical asset, or its NFT. You can’t have a wine bottle NFT on OpenSea, and then the actual wine bottle also bought & sold somewhere else. A mechanism for locking up physical assets and then minting / burning their NFTs as they come in and out of physical use will be required. The metadata will also need to reflect real time the state of the asset, likely via an oracle network, to ensure the value is reflective of degradation, use etc. A few companies are already doing this, such as Courtyard and 4k and I expect many more novel solutions to emerge. We are far from having a reliable infrastructure to make physical assets a widely accepted technology / use case, however it is only a matter of time.
Digital assets as NFTs
Perhaps where I should have started as these are the most obvious sources of token-based utility / NFT use cases, many of which are already operational today. As we outlined in Part 1, almost anything can be placed within the NFT ‘wrapper’ which lends itself well to digital assets and media files.
We are already seeing significant traction with music NFTs and many believe this will be the catalyst for the next bull run. What holds true for JPEGs holds true for Audio - NFTs give artists a novel way to monetise their content at scale and circumvent incumbent systems. With Record Labels controlling go-to-market, the music industry is notoriously difficult for emerging artists to break into. A few companies are already doing interesting things here, foremost being Royal.io where you can buy NFTs which represent fractional ownership in a song - by holding the NFT, you get a share of future streaming revenue (a concrete use case of token-based utility & value beyond speculation) and they've already collab’d with stars like Nas, Diplo and more. At the emerging artist end of the spectrum we have platforms like Audius and Sound.xyz where you can buy whole songs as NFTs or crowdfund an artist's upcoming release.
Hopefully by now you are getting the idea - any media format can be tokenised, so why not film and movies? The possibilities here are endless. Imagine owning a 10-second snippet of the latest Marvel movie and receiving revenue through a smart contract whenever it is shown at the cinema?
I’m loving Shibuya.xyz and @pplpleasr1’s attempt at creating a web3 native movie studio - fans were able to mint ‘Producer Pass’ NFTs which act as governance tokens and allow holders to vote on the direction the protagonist takes throughout the movie, unlocking different story paths based on the communities desires. Once the film is finalised, it will be fractionalised and all participants get a stake (and rev share) in the final cut.
We all have subscriptions, but the majority of those assets are under utilised - I watch Netflix a few hours a week but outside of this my account sits idle. The same for my gym pass, a 24hour train ticket, or a software tool like Adobe. In practice, we could tokenise these assets and let their Utility trade on a marketplace. Similar to how NFTs can unlock latent liquidity in physical assets, the same could work for subscriptions.
In practice this wouldn't be too hard from a technology perspective (via token gating - more on this below) however the obvious barrier is the web2 organisations who want to control their product/content. It isn’t hard to imagine Adobe creating a ‘lifetime access NFT’ which could be freely traded and grants holders access to their full suite of tools via the cloud.
I want to highlight here that these use cases are only possible via a blockchain and with NFTs. Why? Because they are reliant on a unified framework for value transfer & a decentralised record of ownership. For these assets (the subscriptions) to trade hands freely, the issuing entity (the corporation) needs to be able to accurately track each asset, its usage, and ensure there is no double-counting, counterfeiting etc. At scale and across industries, the only solution is a blockchain.
👋 If you are enjoying this article please subscribe for more! 👇
Intangible assets as NFTs
We as humans have always struggled when it comes to intangible assets. How do we value, store and access them? Better yet, how do you transfer them to another party? A brand is easy to transfer if you have clear IP, but what about things like your network, or your experience? No surprise, NFTs give us a potential solution to many of these problems.
Unlike the above, most of the concepts below are based on non-transferrable forms of ownership / identity (i.e. you cant send these tokens to someone else) and we don’t yet have an appropriate framework to do so. The good news, its in the works, with Vitalik’s initial Soul Bound Token concept well received and only a matter of time before someone solves the puzzle.
Professional Certification NFTs
As we move to a distributed & decentralised global workforce, I believe NFTs will become a core feature of the labour market. If DAOs are the future corporations, then we will need systems of record for people’s skills and work experience. Imagine a future where your university degree is tokenised, you connect your wallet to a DAO, and you are preapproved as a potential job candidate. Perhaps once you finish working with that DAO, your ‘Resume NFT’ is updated or you receive a POAP outlining the value you delivered and an exit review by your manager. This may seem futuristic but it is already starting to happen (Otterspace, Coordinape) and it throws into question the concept of labour market mobility. Tokenising experience would lead to a more efficient (and truthful) labour market, improving output and resource allocation for the global economy as a whole.
Personal records as NFTs
Medical records are one of the most archaic stores of data in our society today. Every hospital has a file for each of their patients. The hospital systems aren’t connected, and your GP needs to literally call up the other hospital to get your medical history. Try doing this across countries and it's almost impossible. Am sure you see where this is going - tokenised medical records. This would be a 10x improvement on the existing systems. Data privacy and security would be of utmost importance of course, so perhaps the solution is a private blockchain hosted by a centralised government entity or third-party trusted provider, instead of something decentralised and P2P, yet the point remains - there is a clear NFT use case here.
Lens Protocol are already leading the charge when it comes to tokenising your social network (or Social Graph as its referred to). In a decentralised future, your social connections will be decoupled from centralised companies. Instead of Facebook of LinkedIn owning your profile & connections, you will have a Web3 social profile - it will contain all your conversations, pictures, friends and more, and you’ll be able to take that with you where you go (via an NFT).
Corporate & Financial NFTs
This section could be an article in of itself, however I want to very briefly touch on what I’m calling ‘Corporate & Financial NFTs' - broadly NFTs which deal with ESOP’s and Equity ownership. For anyone who has dealt with an Employee Stock Ownership Plan (ESOP) or made personal investments for company equity, you should recognise these systems are archaic, hard to use, and even harder to keep track of in a unified way. Balaji already proposed the Mirrotable concept, which I strongly agree with, and there are several companies out there trying to tokenise company cap tables and streamline investing, whether it be - Syndicate, Fairmint, SaltoX or NextRound (to name a few).
No discussion about the future of NFTs would be complete without touching on one of the areas i’m most excited about - direct-to-avatar marketing. The combination of NFT-led digital communities and blockchain based transparency has the potential to completely change how corporations connect with new and existing customers. Traditional marketing strategies rely heavily on Google or Facebook sending ads to random people based on demographics, similar interests or other broad based search terms. Over time we have seen this become less and less effective, and more and more expensive. Ask any marketing team today and they will say they are desperate to find new ways to engage with customers…. and NFTs are the answer.
Proof of Attendance / Proof of Behaviour
I used to collect tickets to football matches I saw live. Watching Juventus in the Champions League was a personal highlight, however the ticket quickly faded to an indecipherable piece of paper. I’d much rather they had given me an NFT.
This is in essence what POAPs (Proof of Attendance Protocol) are - digital forms of record to document & evidence your attendance at some sort of event. It can be an IRL event like a football game or music concert, or a URL event like an online conference, in-game event or simply buying something digitally. POAPs are the new-age badge of honour. Having one in your wallet shows you’re (actively) part of a tribe, and lets you find your community.
From a company’s perspective, POAPs are a marketing goldmine. Now, you can 100% accurately identity not only your most engaged customers (airdrop them a POAP when they buy something or attend a store?), but also those of your closest competitors. Goodbye Google/Facebook. Hello POAP.
Taking it a step further, companies like Cub3 are building ‘Proof of Behaviour’ protocols which incentivise customers to take certain actions (e.g. Post this on Twitter and we will airdrop you a token). These two elements combined (POA + POB) will revolutionise the marketing stack, while also rewarding consumers for their loyalty (by giving you tokens) - its a win-win.
Exclusivity has a certain appeal… we like to think of ourselves as being more important than we are. Its why members clubs and first-class flights are a thing. Its also why token-gating is going to change how companies interact with, engage and retain consumers.
Token-gating is the process of locking experiences & content behind doors, which can only be opened if you hold the right token (the web3 version of a paywall). By combining token gating and POAPs, companies now have the ability to create fully customisable experiences for different customer groups. What this might look like in the future:
Secret landing page or unique products for your best customers
Exclusive IRL events which also airdrop you a POAP
Customisable content and marketing materials for different segments (no more A/B testing)
Generative tokens which evolve & unlock rewards as you collect more of them (i.e. gamification and tiering)
Interoperability of tokens & ability to cross-market to other communities (e.g. hold a Balenciaga NFT, get 20% off at Gucci)
I believe these technologies in unison are going to completely disrupt the existing marketing stack and change the relationship between companies and consumers, rewarding loyalty and fostering connected communities. A number of companies are working on smart solutions here including Flooz and POAP.
Wrapping up, for now…
If you’ve made it this far, thank you for taking the time to read it all! I had originally planned to write a short piece about NFT use cases, and I ended up with this 2 part beast of an article 😅 I have to caveat that the space is constantly evolving and I’m sure I’ve missed many other interesting use cases and companies on the way.
NFT’s are near to my heart and an area I’m very passionate about. Most of my friends are sick of me waxing lyrical about how bright the future is for this technology, as I truly believe it has the potential to change the world. I see a future where crypto wallets are as ubiquitous as credit cards or smart phones and we all hold multiple NFTs representing our identity, interests, communities and much more. I hope this article was helpful to convey that optimism and let others get a glimpse of where we may be headed with Web3.
I had also wanted to turn this article itself into an NFT, but sadly Mirror’s functionality is still not great for writers. Perhaps in the near future I'll do so.
At this point I also want to give thanks to the people who have helped me pull this together, either people I’ve directly chatted with, or who’s work & views have helped shape my thesis. In no particular order - Packy McCormick, Zeneca, Patrick Collins, Andrew Steinwold, Filip Martinsson, Jay Azhang, Ian Lee, Adi Ben-Ari,
As always, all feedback / comments / shares are welcome!
😎 About the Author
I’m an Investor at Felix Capital, a London based early-stage and growth fund specialising in the intersection between consumers and technology. We have been fortunate to support the likes of Ledger, Sorare, Lightspark, Rally, Flooz and others, and actively looking for great crypto founders to invest in. For entrepreneurs looking for funding (or wanting to chat), you can reach me via email - Joseph@felixcap.com or Twitter @Jpizzolat0
Great piece Joseph!
One small pointer re music NFTs. Royal is surely forerunner in this field, however, they mainly focusing on "new music". I would also check anotherblock.io (Sweden), who just launched last week and will increasingly focus on existing music.