来源： Substack

作者：Sheldon

Is utility the answer?

I have a very talented friend in the web3 space who mints and analyzes NFTs professionally. Every time we have a conversation, I am reminded that our approaches to NFTs differ wildly. As I talk about thought-provoking artworks and latest use cases, he brings out charts and stats, draws trend lines, and dissects Twitter activities. Cool bruh.

In moments like these, I realize that underneath our passions for NFTs, we are in two very different camps. Some call this the “qualitative vs quantitative” or “builder vs trader,” I call this the “utility vs futility” split.

My friend is definitely much more successful than I am in the NFT market thanks to his strong analytical skills. Seeing his comparative victories led to a period in my life where I questioned my approach to NFTs. In this nonsensical market driven by sheer sentiment, narrative, and trading bots, am I romanticizing utility? Am I wrong to think that NFTs should work towards…something?

Now, if you can reel back from your fury towards “crypto bros” and their nihilist pursuits of killing god through the sheer power of ape images, let us recognize that their disregard for utility isn’t without merit. After all, traditional art and artworks have a perhaps even more dismissive attitude towards utility. But instead of simply equating the futility of NFTs with that of traditional art, let’s take a deeper dive into this question: how do we think about utility? How does utility impact NFT pricing? Most importantly, is utility the answer to the next million NFT owners/users?

TL;DR: yes you bet. Woooo!

This article is for users who look at all the hype around NFTs, all the buzzwords they don’t understand, and wonder what NFTs are really for. Specifically, this article is for those who are just as lost as I was about the future of NFTs: will we ever move beyond JPEGs and hype; is this the end?

The argument for futility

Futility here doesn’t mean nihilistic. We are not talking about how the Dadaists uttered gibberish on stage or how the Fluxus mounted absurd performances. I posit two models of futility in the current NFT ecosystem:

“Community”: this NFT grants you access to a social club, an exclusive space, a community of people

“Brand, scarcity, collectible”: you are owning something rare, something cool, something worth signaling; whether it is from its creators, its owners, its past owners, or its message 

When put like this, neither option paints a picture of uselessness (because it is not hard to imbue some meaning into things). However, they do represent some of the most questioned use cases for NFTs, Whether it's the silly pixels of CryptoPunk, the “overpriced” Beeple images, or the Jack Dorsey tweet no one wanted.

Then why is futility still omnipresent in the current NFT landscape? Because people have reasons to embrace futility.

Let’s start from the degenerate views: futility defies valuation. We can appraise most things in life: a chair, a car, a house, a gym membership. Even though similar benchmarks for digital items are still very nascent and volatile, it is in theory doable. This logic breaks, however, when it comes from the truly “nonsensical” things: famous paintings, baseball cards, porcelain dolls, jewelry, watches, selfies… These objects derive mostly from the value ascribed to them by followers and communities. Another framework is that their value comes from endogenous factors such as characteristics, scarcity, and materiality, as well as exogenous factors such as perception and liquidity. Either way, their valuation comes from a mixture of the intangibles and demand (the link tries to justify how this works, but the biggest takeaway is that valuation is a fake science). It is hard to appraise Yuga Labs’ intellectual properties and trademarks; it is harder to appraise twitter hype; it is harder to appraise the gaze of admirers. Futility positions itself as a product for collectors, insiders, publicists, speculators, and capital. 

This leads to the next argument: futility is the construction of brands. Many NFT projects point to the luxury goods market: Patek Philippe and Hermes have constructed identities that draw people into their aura. They argue that apes, stones, and punks are simply the luxury goods of the digital era. Their approach is quite smart. In the traditional world, building a brand identity and following requires us to seek a profit model: sell knowledge, fashion, performances, likeness… NFTs offer a new profit model where you don’t have to pretend to sell utility - this is the unabashed embracing of futile concepts, like the Supreme brick of a new generation. 

Then there are slightly more practical reasons: futility is community-control. The decentralized ethos reads as such: NFTs create communities, and communities should be self-governed. Creators can influence this community, but they should not dominate its governance. Futility, therefore, paves the road to self-determination and self-governance by not making any assumptions about what the project should be. The value of this argument is particularly obvious when NFT projects run the risk of getting “abandoned” by their creators, whose dedication is more about goodwill than any contract. The NFTs might develop utility down the line, but that is not up to the creators to decide. 

Lastly, a very realistic argument: futility is the reality of our current ecosystem. If the goal is to imbue our NFTs with interactive, evolutionary properties that evolve on-chain and interact with other contracts on-chain, our existing ecosystem is not fully there yet. The biggest names (by that I really just mean Ethereum) are too slow and too expensive for meaningful utility outside of being the playground for rich participants. Solution providers are still racing to build, provided that enthusiasm isn’t completely crushed (which shouldn't happen) after high-profile crashes. In any case, as of May 2022, no solution has established itself as the fast, cheap, secure, reliable future blockchain built for NFT utility. Until then, futility isn’t a choice; it’s forced. 

Then there is the ultimate argument: futility is a sometimes-evil, sometimes-effective business model. In short: spectators simply don’t care. Those chasing outsized returns in the NFT market care more about price trends, Twitter activity, and other metrics. Branding and messaging get sentiment going, crafting hype and bubbles, and capital ensues. Some of these projects sustain the momentum, some are straight up rug pulls. But in all of these projects, someone made money, so history replays itself again and again.

Why they are… not correct

Before word vomiting, I must confess one thing: futility is fair - in certain cases. For example, artists who utilize the blockchain to monetize their digital content should feel assured (at least for now) about their practice. The community aspect of NFTs will also persist as the ecosystem matures. I also recognize that there will be NFT brands and digital luxury goods just like there are in the physical world - no matter how much I object to their apparent meaninglessness.

But futility should not define the NFT use cases, nor should it limit our imagination in the NFT space. We must recognize the challenges associated with overhyping futility. 

First off, without needing me to tell you, consumer/speculative interest (a.k.a. hype) is hard to sustain. Great news for those looking to make a quick buck; difficult for those who are genuinely interested in the technology, and for the retail crowd anxiously waiting. That is one of my fundamental fears about futility: futility is for the few, not the many.

Secondly, building a luxury brand is never easy and will only get harder. Luxury brands of our time have spent decades refining and battle-testing their brand DNA, and that isn’t enough for them to withstand the tides turning. Granted, crypto’s nascent nature allows brands to take a nimble and bold approach to establish their presence, but that doesn’t make it any easier to establish a recognizable, coherent, and resilient brand. In this world of fast circulation and low barrier-to-entry, NFT projects need to show that they can adapt to changing narratives, evolving demographics and fluctuating market conditions (e.g., we are literally witnessing bear NFTs having their moment in this bear market), without destroying its reputation in missteps. We have seen the Supreme and Bape (coincidence?) and Off-White of NFT brands, but the resiliency and timelessness of Hermes and Chanel remain at large. Time will tell the established ones from the wannabes. If there is one thing for sure, it’s that the market is for sure flooded with wannabes. For now, the closest thing to an established brand in crypto is…Vitalik. 

Third, decentralized, community-driven projects have disadvantages in creating brands. The process of brand creation is more autocratic than they are democratic. Look at any fashion house: the vision doesn’t rely on user feedback or crowdsourcing but on strong-willed creative directors who merge brand DNA with creative vision, and execute upon these ideas. To hammer down on the fashion analogy, the community-driven brand is more like the Zara and Forever 21s of this world, regurgitating the zeitgeist for their audience. There’s far less luxury or scarcity or hype in fast fashion, and likely in community-driven NFTs too. With that being said, decentralization is not a binary, and there are ways to nurture organic attention and ride community hype without compromising a unique message, a clear vision, and strong execution. After all, decentralization is still valid as a concept - it just may not be the most effective in branding.

Lastly, the technological limitations are not insurmountable. Like any technology, blockchain is constantly upgrading and evolving. Groups and projects are building towards utility chains - secure, fast, cheap, and scalable blockchains that can support a more dynamic, interactive ecosystem for billions of users to access in real time. No citations here because I’m not in the business of picking the winner of this race, but it is not unreasonable to believe that an established utility chain will emerge in the upcoming years.

With all that said, futility is still a dominant business strategy within the existing NFT world. The futility model will likely persist to some extent unless significant shakeups force the market to change (and even then likely only for a short cycle). When the Solana community rallied behind the utility vision for their approach to NFTs, they didn’t anticipate the stardom of a few successful PFPs to turn Solana into the new stomping ground for branding, community, and, at the end of the day, futility. C'est la vie.

The numbers tell us to love utility

I want to remind folks of the futility market size. The global arts and antique sales were just over $50-70 billion in the past few years; luxury goods is a ~$350 billion business that is growing at ~4%, and this figure contains more “practical items” such as clothes, cosmetics, and fragrances. 

These are some big markets, but OpenSea in 2021 alone saw $14 billion of sales. Some reports even put NFT as a $40+ billion business already. The space still has room to grow, but the horizon lies closer than many expect. You will find bullish reports out there that are much more bullish on the NFT market, but much of the assumption lies in NFT onboarding more users. They would be right: unless NFTs onboard a whole new class of investors into collectibles investing and luxury goods, the futility use case (i know, ironic) will only carry NFTs so far. 

I don’t think any NFT enthusiast (including me) is happy with these market size and CAGR comparisons. Many I speak to think of the NFT as a technology that should be aiming for high growth in gaming (>$175 billion in 2021, >12% CAGR) and advertising (>$700 billion, >15% CAGR), and the high TAM of entertainment (>$2 trillion, ~5% CAGR), and real estate (>$10 trillion, ~5% CAGR). The last one maybe a lot more farfetched than others.

To get there, the community needs to embrace utilitarian use cases and, in doing so, establish long-term sustainability. This will help onboard the next million users, if not billion users, into NFTs. For those interested in applications beyond brands, art, and collectibles, NFTs need to be the means, not the ends. So much of the emphasis is still on building the NFTs themselves, rather than NFTs as intermediaries: identity vessels, in-game items, certifications, reservations and tickets, contracts, policies…

Note that these use cases don’t have to be applicable in the real world. If anything, the digital-native world is where NFTs have the highest potential to shine. These opportunities are more than just digital presence and digital fashion; they are rules, ownerships, certifications, activities, and more. 

At the end of the day, we need to recognize futility’s contribution to the popularity of NFT as a technology, accept legitimate yet “futile” use cases, keep a high alert against Ponzis and con artists, and love utility. NFTs are still looking for more of that magical product-market fit, and the community will find them. 

Then what NFTs should I buy and do I really have to?

This is not investment advice.

Long-run, maybe you will have to. Utility NFTs will slowly eat the physical and digital world, so you will likely find yourself owning one (or more than one) someday for practical purposes.

To a large extent, the ecosystem right now is already creating utility, with many incumbents building towards this goal. If you are an adventurous or experienced trader who can keep up with futility and place appropriate bets (why the hell are you reading this article champ? Go out there and make $$$), utility may not be a life-changing thing for you. For the many more who are not that, it is necessary to take a more venture capital approach to NFT purchasing. 

This means that your next (maybe first) NFT purchase takes a lot more diligence. A few example diligence questions include:

What does this NFT do now and how does this NFT envision its purpose in the future? 

Beyond community and branding, what utility does this NFT collection intend to offer? Where else does this NFT matter outside of Twitter and Discord?

Who are the people running this project? Are these developers? Marketers? Designers? A mixture of everyone? Do they have the talent to deliver on their vision?

Taking a venture capital approach also means that you have to be ready for an overwhelming majority of your portfolio to be…unprofitable investments, to say the least. Such is the landscape of the wild, wild west.

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