NFTs turn everyone into a billboard and integrate with their existing social network.
Editor's note from Planet Daily: In the world of web2, we have seen new models of brand economy: from increasing advertising volume by feeding users with content they are addicted to, to selling products through the trust model recommended by KOLs, but there are also Many problems: customer acquisition costs are getting higher and higher, data is inaccurate, and core consumers cannot be effectively motivated. This article describes the possibility of NFTs changing the status quo. NFT will not only be a speculative product, but will become a tool for all brands to build a real community in the future, effectively reach consumers through on-chain data, and improve the stickiness of core consumers. It is very interesting.
With the advent of the Internet, we moved from a transactional economy to an attentional economy. The development of the attention economy, firmly grasping the public psyche, has changed the cultural narrative on a massive scale.
NFTs represent the financial productization of attention. As more and more brands release NFTs, this could change the business model in the next decade, and the costs for brands could be infinitely lower.
However, at present, we are still in the experimental stage of NFT, and brands are actively conducting NFT experiments. Adidas is making sweatshirts for members of the Bored Ape Yacht Club, FTX is helping Coachella Music Festival design NFT music festival lifetime tickets, and POAP is helping event organizers use NFTs to create proof of attendance. The possibilities of NFTs are endless.
To predict where NFT will go in the future, we first need to know how business has gotten to where it is today.
The Pre-Life of NFTs
In the early days, human economies were resource-intensive and ownership was not valued. Over time, it became the norm for people to take ownership of the jobs they gave them. Think about how the company went from payroll to dividends to employee option incentives now.
After analyzing resource spending and ownership, we conclude four stages of economic model evolution:
- Transactional Economy: Currency exchanged for goods or services. Much of human history has been based on a transactional economy. Think barter, the Silk Road, or the ultimate form of colonization. The transactional economy is the backbone of all of the above. Before the advent of technologies such as ships and trade routes, their focus was on the local market, which continued until the advent of the printing press.
- The Attention Economy: The printing press drastically reduces the cost of copying information. But it wasn't until the 18th century that the book market emerged, and literacy rates rose dramatically. Newspapers were the forerunners of today's platforms. The attention economy is when you sell "attention" rather than a commodity to third parties. Last year alone, YouTube made $29 billion in advertising influence. They have virtually no production costs and high customer stickiness. You can scale the attention economy to the size of a country like Facebook can, without worrying about the costs rising proportionally.
- Platform Economy: The platform economy connects sellers and service providers with potential buyers. Amazon earned nearly $489 billion as a result. Following the same pattern, Uber's revenue grew from $100 million in 2013 to $13 billion in 2020. The value of the platform lies in discovering and trusting the suppliers on the platform. Most of the mobile apps we use every day now have a platform. The cost is in managing the vendor and trusting users with a sufficiently large user base.
- Community Economy: The community economy is an evolution of the cooperative. The internet gave us access to global markets (2010), and smart contracts allowed us to trust each other without intermediaries (2020). We have been at the stage of exploring alternative economic models. That's what DAOs are all about, they connect individual autonomy to economic opportunities that didn't exist before.
A community economy is an instance of users managing what they use. These economic models leave evidence of economic interactions on-chain, making data on participants in these economies publicly available. The community economy differs from the platform economy and attention economy in that participant data is not typically stored on corporate-owned servers. Anyone can query and build on it. Gitcoin, ENS, Covalent, Biconomy, and NFT-based DAOs like LobsterDAO are examples of this.
Are shareholder-driven companies a community economy? GameStop might barely fit that definition, but for now we're back on the NFT topic.
The present and future of NFTs
Let us use a chart to analyze the difference in the quantification of brand value under different economic models. The x-axis represents relationships, which refer to relationships between parties in a transaction. The closer the relationship, the harder it is to make a highly quantified and fully negotiated deal. On the y-axis, we refine the decomposition of economic interactions. It refers to the extent to which sellers determine value before a transaction, and how quickly customers accept the transaction. Think about Amazon's delivery service, you know what you're buying and when it's going to arrive at your door.
Buyers usually know the value and price of a Rolls-Royce or Gucci product, and they rarely require double confirmation because brand trust is established and the value proposition is clear. Trust in attention economy platforms tends to be low. We rarely buy branded products directly from those platforms. Attention economy platforms have been optimized for KOLs because they strike the right balance between personal content and commerce.
People with sufficient influence (and trust) directly sell goods in the form of subscriptions. Representative examples include Substack (Note from the Planetary Daily: a self-media platform similar to the US version of the official account, but the message is received in the form of paid subscription emails) and Patreon (Note from the Planet: A platform for content creators and artists to crowdfund their works and products). The problem is that the content of these KOLs can be biased, which is why community matters in modern business.
Like Product Hunt (Note: A platform for discovering new products, developers can submit their own works, and the website will generate a daily list based on public votes, where you can learn about novel services, interesting applications, and interesting hardware. etc.) such communities change the relationship between participants, from strangers who meet by chance on the Internet to collaborators driven by a shared vision.
And for token and NFT-based communities, price is often the glue that holds people together, and the community reduces friction in transactions. Since information asymmetry is minimized, the final price is usually in the open auction. The Web3 project community takes this to the extreme. Most teams simply run a governance committee rather than outsource. Individuals interested in the task can complete and submit through the community governance rules, and get paid in tokens.
This breaks the typical hiring pattern. Contributors work with multiple teams, and teams can pick talent from a larger talent pool. Since rewards are usually paid in the project's token, contributors can choose to exchange for a stablecoin, or hold the token. Owning tokens also makes contributors belong to the network, both spiritually and financially, thereby increasing user stickiness.
The future of NFTs
NFTs take this model to the extreme. Since the average cost of NFTs is higher than that of homogenized tokens, ordinary retail participants do not have enough idle funds to buy multiple NFTs, so they can only all in or all out. Going forward, major brands may use NFTs as a way to stimulate high-end consumer groups.
Airdrop NFT to the 1000 most active users? Use NFTs to encourage friendly behavior or to signal the most active users of the product. We can think of NFTs as on-chain participation certification. Because NFTs can unlock new customer privileges. Historically, brands owned all the data associated with their users, and independent third-party developers were not able to directly incentivize those users, and with NFTs this is possible.
Multiple commercial entities can offer unique discounts based on the wallet's history
Of course, NFTs aren't just used to unlock customer privileges, and now loyalty cards can do the same. What NFTs can achieve in the future is to achieve permissionless community goals in a value-added way.
Charlie Munger famously said, "Show me the motivation and I'll show you the results."
Web2 platforms can make us addicted to what's on the screen because their motivation is based on selling ads. The more time you spend staring at funny videos, the more likely the platform will show you ads, which is why they are based on variable rewards.
NFTs could be our way of changing the dynamics of the internet. Rather than slowly nudge users to buy things they may not need, brands can leverage on-chain data to target users, offer them special treatment, and tap into communities they might benefit from. Of course, there are also privacy concerns here. For example, can a person attending a specific geographic location in real life be tracked on-chain? This is why solutions like zero-knowledge proofs are becoming increasingly important.
Growth driven by NFTs
You might think it's crazy that I'm proposing that we're going to run our economy from advertising to user data orientation. But several factors may have contributed to this shift. Hardware or OS changes since the release of iOS 14 can reduce advertising. In fact, several platforms have already experimented with NFTs.
Time Magazine publishes a collection of more than 4,600 NFT collectibles that holders can access. Famous WWE star John Cena posted 500 NFTs to his 16.2 million Instagram followers, and only about 37 bought them. Melania Trump tried to issue NFTs but bought them back herself. Ubisoft is one of my favorite games, it's tested for NFT distribution, and it's only $400 in sales. The vast majority of celebrity-related NFTs have been on a downward trend since launch.
I think NFT-based community building requires a lot of thinking about user positioning.
When LooksRare was released, there were 22,000 holding addresses. About 18,000 wallets still hold these tokens. About 80% of them held LOOKS for more than a month. This happens because LooksRare targets users who are actively trading on the NFT platform.
Another example is LobsterDAO, whose DAO was launched thanks to “proportion of user activity with NFTs in community chat”. The community has released about 7 original versions of DeFi that use NFTs for verifying users' identities and rewarding tokens in exchange for performing certain actions, such as staking or adding liquidity. For the team, the tokens given are the cost of acquiring users who have participated in DeFi-related discussions.
Startups should see NFTs provide their key users with social capital. The latest update to Twitter Blue allows users to verify if they own an NFT. As user preferences evolve, newspaper advertising models may face the same fate. Twitter allows users to display the NFTs they hold as a profile picture, which effectively turns everyone's personal identity into a billboard and integrates it with the existing social network.
Startups will soon be able to airdrop NFTs with predefined privileges, such as power users, contributors, and product ambassadors, effectively arousing the interest and curiosity of third-party users. Another way is education. As learning models evolve from universities to digital media, we will see certifications based on on-chain optional learning become more common. If a platform is digital, users can be accessed simply by checking their assets on-chain. Bankless is another publishing platform that operates as a DAO using on-chain assets.
Come for NFT, stay for the community
Remember how I defined NFTs at the beginning of this article as an economic representation of your attention? I think this is the most overlooked aspect of the ecosystem today. Most NFTs represent some kind of subculture or meme color, which gives people a sense of belonging, such as mfers. This is what happens when brand = identity.
Deep down, we are all looking for the same thing, a tribe to which we belong, an identity.
Sometimes users go to great lengths to establish their dominance (social status) in the "tribe", and sometimes it costs a lot of money. Commercial tools such as NFTs make the process of finding similar people, finding tribes, and exchanging signals with each other more efficient.