Wiser! #64 (Premium): NFT prices are being fuelled by Status and Scarcity. It's more than just speculating for a huge pay day, NFTs are about bragging rights. And access to a closed community. Sprinkle a limited supply and, voila, you have a $40 billion market!
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The intoxicating allure of status
The two most prominent NFT art collections are called CryptoPunks and Bored Ape Yacht Club.
CryptoPunks debuted in 2017 and is widely regarded as the first NFT compilation collection. It has sales of around $1.5 billion from its collection, trailing second only to Axie Infinity, the blockchain based game that has a pokemon-meets-cryptocurrency theme. The average price for a CryptoPunk is $80k and the most expensive was sold for more than $7.5 million.
Bored Ape Yacht Club only started out in 2021 and has already generated over $1 billion in trading activity. According to DappRadar, the typical Bored Ape averages at $27k. So far, the most expensive Bored Ape NFT has sold for $2.9 million.
In terms of heritage, top purchases, and average cost, CryptoPunks remains a superior NFT collection. However, Bored Apes has established itself as a powerful brand in the NFT industry, which might propel the NFT collection to being the number 1 brand by the end of 2022.
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Do you wanna be in my gang?
The Bored Ape Yacht Club is a collection of 10,000 ape avatars that individually act as tickets to an online social club.
STOP. Let me draw your attention to what I just said. The NFTs act "as tickets to an online social club."
Buying a Bored Ape NFT gets you entry "into the Yacht Club", which comes with status. Remember, there's something intoxicating about status. Just look at Apple who have built a business out of it selling $500 worth of chips and sensors for $1200 and calling it an iPhone (think: scale of Toyota and margins of Ferrari).
In December, I wrote a piece about Gary "Vee" Vaynerchuk. The self-titled "thinkfluencer" and self-promoting social media personality who claims to have made over $90m in 90 days from making and selling his own collection of NFTs. These hand drawn sketches are child-like and would look at home on the wall of a pre-school nursery.
But here's the thing. Vaynerchuk created the illusion of an exclusive club called VeeFriends. Entry to the club isn't cheap, thereby giving it exclusivity. Exclusivity gives it status. Status comes with bragging rights.
So, by buying one of Gary Vee's hand drawn sketches (he spent a couple of minutes on each one of the 10,000 drawings in the collection), owners also get memebrship to the club.
And he's done it again.
Flyfish Club is the world's first NFT restaurant
BackStory: This is a great example of SCARCITY and STATUS in action.
Flyfish Club is a private dining club that claims to be the world's first NFT restaurant for members only. The public sale for Flyfish Club NFTs recently sold out and sales on the secondary market are flying! The member’s only private restaurant is the first in the world to sell its memberships through NFTs on a blockchain.
Status
In December, Flyfish Club held a special presale for 350 NFTs, followed by a public auction of 1,151 NFTs in January. In total there are 3,035 membership NFTs, divided into two categories; an entry and an upper level.
Entry: Flyfish: there are 2,650 Flyfish NFTs (available for 2.5 ETH each). These NFT's give holders physical and exclusive access to The Flyfish Club in New York, as well as entry to other real and virtual events.
Upper: Flyfish Omakase: there are 385 Flyfish Omakase NFTs (priced at 4.25 ETH). These NFTs offer all of the advantages of the Flyfish tokens, plus access to an Omakase experience prepared by a master sushi chef.
Scarcity
Of the 3,000 NFTs available for entry to the Flyfish Club, 1,500 of them are available on OpenSea right now, with fewer than 10% of them advertised for sale and a floor price of 3.69 ETH (that's a 50% premium already). On top of this, Flyfish Club have held back 1,500 NFTs in reserve for future sales and collaborations. By limiting the supply of NFTs whilst also advertising the fact that there are more out there, the allure for them has been increased.
NFT Art was worth as much as Fine Art in 2021
Opensea, the world's largest NFT marketplace, was valued at $13.3 billion in January. It's also the world's most valuable NFT exchange (although the true valuable wont be decided until someone actually wants to buy it).
The thing is, Opensea was (only) valued at $1.5 billion just over a year ago (when it raised $100 million in its 2020 Series B round). That's a more than 10 fold increase in the value placed on it by investors in a little over a year.
A year ago hardly anyone could spell 'N-F-T' let alone explain what 'fungible' meant. Now, we have NFT as the Collins' Word of the Year. And, according to Chainalysis, nearly $41 billion worth of Ethereum-based NFTs were sold in 2021.
To put that into context, the global art market was worth around $50 billion last year, per UBS.
Of course, there's a downside...
NFT art fraud is also on the rise
Plagiarism and fraud in NFTs is on the rise. Sadly, there's always a downside with any new technology innovation, primarily because it is still new and lacks market discipline, consumer awareness and regulations.
This rise in fraud is exploited by the use of bots that can scrape an artists' website for images. The bot can also mine online galleries or even keyword searches on Google Images. Once the bot has captured the digital images, the fraudster can auto-generate NFT art collections with associated auto-generated content. This is happening on a scale that can not be performed at a human level.
Once the NFT collections have been auto-generated, they get spread all over the NFT exchanges. This is happening mainly on OpenSea, according to a report in The Verge.
The reason it happens on OpenSea is that they allow users to make NFTs by what is called "lazy minting." This means that people can list NFTs for sale without writing them to the blockchain, thereby avoiding any fees for using the Ethereum platform (these are called "gas fees"). Until the NFT is sold, the seller doesn't pay a bean.
This is perfect for scammers to list as many stolen items as they want in the hope that someone will fall for it. Here's an example of an NFT theft from artist Aja Trier.
86 thousand times people have stolen my art and listed them on @opensea and they even had the gall to make a collection like a giant middle finger to my IP rights. Wtf?#nft #arttheft #opensea #infringement #nftcommunity pic.twitter.com/LY5Jxb2N2r
— Aja Trier (@AjaArt) January 5, 2022
Burning NFTs as a solution to Copyright Infringement
The other issue that dogs NFTs is copyright infringement. We saw it recently in stories I covered about movie director Quentin Tarantino being sued by Miramax. Or the buyers of a First edition of Dune who thought they were buying the title to the book thereby enabling them to mint individual pages.
The latest example to hit the headlines is Nike. The number 1 sportswear brand has filed a lawsuit against marketplace retailer StockX because they have minted NFTs that include images of Nike gear. The sportswear giant alleges StockX is “blatantly freeriding” on the back of Nike’s trademarks by selling NFTs featuring digital renders of Nike goods.
It is the inability to edit, reproduce or tamper with NFTs which is a critical feature of blockchain technology. It is this feature that defines the characteristics of NFTs for authenticity, ownership, and scarcity. But what if a major brand, artist or NFT owner wants to amend or remove an NFT for any reason, from infringement to being so last season?
The solution is that they can destroy it.
The process of permanently withdrawing a non-fungible token from circulation is known as "burning". This can be done, for example, to remove unsold or troublesome inventory from an NFT drop, or it can be done to engage collectors and fans by offering "upgrades" that replace the original NFT with something different. Or simply to create scarcity.
- Unisocks introduced this concept with physical items; people could burn a token in exchange for a physical pair of socks.
- Adidas is using a version of a burn-in its Adidas Originals drop; when NFT holders buy a pair of physical shoes, their NFT changes colour.
- In July last year, artist Damien Hirst invited buyers to choose between digital and physical. He sold 10,000 unique digital spot paintings as NFTs.
When it comes to copyright infringement, burning becomes an interesting option. Take the case of Hermés, which filed a lawsuit against an artist for selling NFTs that allegedly looked like the brand’s bags. Hermes could have invited owners of the offending MetaBirkins to burn their NFTs in exchange for replacement NFTs from Gucci.
Less Ape, More Application
ComingNext: Watch out for the next Insights article on the subject of NFTs. It's going to be all about the Utility of NFTs.
Finally: a year ago I wrote this about NFTs. It was only the 4th ever Wiser! Newsletter. I knew it would be a big year but must confess, I didnt expect it to be a $40 billion year for NFTs! (A year is a long time in the crypto economy!)
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Let us know what you think about this subject by putting your comments, thoughts or feedback in the comment section blow. ☟
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w/Sources of Insight and Information
Flyfish Club NFT from Gary Vee gives holders fine dining experiences. Source: NFT Evening
OpenSea valued at $13.3 billion in new funding round. Source: HYPEBEAST
New Alfa Romeo SUV equipped with NFT, blockchain technology. Source: CNBC
The counterfeit NFT problem is only getting worse . Source: The Verge
Play-to-Earn Is Already the Biggest Star in the Metaverse. Source: Coindesk
OpenSea NFT Trading Volume Hits $4.5B in January. Source: DappRadar
Gucci Buys Land in Ethereum Game The Sandbox to Create Metaverse Experiences. Source: Decrypt
Nike sues StockX over NFTs. Source: Vogue Business
The Biggest Celebrity NFT Owners in the Bored Ape Yacht Club. Source: Decrypt
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