How Creators are Using NFTs
Get ready new experiences
This is the second part in a 2-part series on NFTs. Part 1 can be found here.
Imagine yourself at a party. The pandemic is over, gatherings are safe, and you’re having the time of your life. All of a sudden a song comes on that you’ve never heard before. You ask the DJ what song this is. They say: “It’s a private song by Kaytranada. An NFT or something like that”. You think it’s pretty cool that there are unique songs out there that can only be listened to by the people that own them so you start doing some research and you find yourself at this article.
This is just one of the several ways in which NFTs can be used to create incredible new experiences for consumers as well as revenue streams for creators. In the previous article on why creators will use NFTs we saw that they radically change the dynamics of the creator economy. They are a way for creators to gain more leverage over intermediaries and ultimately make more money.
Below are a collection of use cases that we might see creators use for NFTs. This list is by no means exhaustive and focuses on using NFTs as ways for creators to generate income and capture value. I explain the use case along with my reasons for why and how they will work. To me, some seem more feasible than other.
Creators Sell Shares of Public Video/Image/Song with Revenue Share (Securitization)
Here the main idea is for the creator to raise money for some project that they want to pursue. That might be an audacious Mr Beast style YouTube Video or it may be another project such as a documentary or an art exhibit. In pursuing this use case, the creator essentially auctions off shares of the project’s future earnings potential in order to get income to start the project. One way to think of this is like crowdsourcing where the fans fund the project.
Another way to look at it is as a financial instrument. The token represents a share of potential revenue from the project. The creator takes money today from the sale, but gives up part of the revenue earned from the project. For the buyers, they’re making a bet. Their bet is that the money earned from the project will be more than what they paid for the token. In the case that it doesn’t, this isn’t far away from most forms of financing where there’s interest on the principle. If a project makes $50k and the token sale brought in $45k, the creator paid $5k to get that money sooner.
What gets me really excited about this use case is that it can be win-win when a lot of gambling is zero-sum. This not only engages fans who want to own a part of the item of creation, but also those people who are looking to make a bet.
However, I have a some concerns. Currently, there’s no platforms or products out there that mint NFTs with the functionality of funnelling revenue created from some venture or project. The second is the legal aspect of the securitized token. This would require transparency on the project’s revenues as well as ensuring dollars from the project were exchanged into ETH. Both offline activities that blockchain contracts cannot enforce without an authoritative body/institution.
Creators Sell Shares of Public Video/Image/Song
In this use case the token has similarities to NFTs as financial tools (as explained above) as well as the traditional use cases with art. The one key difference to the use case above: the NFT does not confer any rights to revenue to the holder. Creators would issue multiple tokens which represent the video and sell them to fans. Fans could then sell the tokens if they wanted to at a price which a future buyer would pay.
With this scenario, the token acts as a collectible. It may appreciate or depreciate in value. The problem is that part of its value is linked to a publicly consumable good. The incentive for ownership of a token of this kind is somewhat decreased because there may not be a buyer for it in the future. What’s the point in owning something who’s only benefit is openly available? With that said, I don’t believe it’s a strong point against this use case.
There’s already been a few successful instances of this.
- Justin Kan, co-founder of Twitch TV + Atrium, has minted the first known shares of a video. His NFTs sold between $500 and $150 USD
- Kevin Rose, a New York Times tech reporter sold an NFT version of his article “Buy This Column on the Blockchain” for $560,000.
- Mario Gabriele, Writer and founder of The Generalist, sold an NFT version of “The Paradox of Coinbase” for over $4,000.
I think you’ll find that this type of token appeals to fans more than people looking to make some money. I can see this use case providing an avenue for fans to engage with creators and their tokens at lower prices.
Creators Sell Shares of Unique Digital assets
I think this is the most bullish use case for creator NFTs. It’s not really sexy because it’s just copying the same use as art or other collectible items, but golly me it works. It might seem silly, but I believe there’s people out there who would pay a pretty penny to own Mr. Beasts first ever video thumbnail. We see fandoms in many folds of our modern culture. Star Wars figurines are selling for thousands, Dwayne “The Rock” Johnson’s college football card is selling for $15k, a SaaS company, ProfitWell, sold unique trading cards of other founders.
In the last post I made, I argued that creators are valuable because of the goodwill that they create. This is one reason why the collectibles above are valuable, the other reason is scarcity which is what NFTs provide. The incentives for ownership revolve around the goodwill the creator has created. Fans want to be closer to those they admire, owning something that’s linked to them gives them that opportunity. I think this has a key difference from the above use case in that this item isn’t linked to consumable content, but rather the token itself is what’s being appreciated. Creators can tokenize important memories, milestones, brand elements, or experiences through NFTs. Logan Paul just did this by tokenizing his love for Pokemon cards, his sale generated $3.5M in one day.
In the same way that fandoms collect ticket stubs, pins, or patches from their favourite artists, creators now have the ability to do that as well. The barriers to entry are incredibly low. Before, in order to create something that a fandom would collect you needed to ideate, design, manufacture, and distribute through retail. Now, those middlemen of retail and manufacturing are out of the picture. There are some market places that are curated similarly to an art gallery, however, there are many more that are completely open. Now, anyone with a laptop can create and mint a token.
Creators Sell Private/Unreleased Content
The Wu-tang Clan auctioned off an unreleased album in 2015. It had songs the public has never heard before. It was sold for $2 million in an auction to none other than Martin Shkreli, the now incarcerated pharma executive. While this wasn’t sold using NFTs or blockchain technology, it’s a use case that can be used with it today.
Unreleased content works really well when the creator has some level of clout that’s given them a following that craves everything they make. NTFs aren’t always a JPEG on a blockchain — they’re keys. There can always be something else on the other side of ownership. Rarible, an open NFT marketplace, lets you do this very easily, where the token is really just a financial tool to make the experience one of a kind and can allow that person, once they’ve purchased the token, to take part in that experience.
This use case is particularly exciting because it’s something that’s easily accessible to creators of all sizes so long as they have a developed following. You’ll see this use case being used by musicians mostly, but also video creators, writers, and podcasters. You’ll also see these tokens show up in what Matthew Ball calls the Metaverse. The Metaverse is a virtual place that’s built up of digital items and experiences. It’s a personal virtual art gallery, book shelf, video game, music library, and so much more. You’ll see the convergence of traditional creativity with new technologies like AR, VR, and possibly even smell-o-vision (I’m still not sure about this one). Imagine owning the unreleased “secret” conversations of your favourite podcast hosts, the never before seen writings from your favourite author, or being able to see AR art hung all around your home. Pretty cool.
The Bumpy Road Ahead
I’ll say something now that not many people will when talking about NFTs. I have a feeling the NFT conversation is in a bubble. While it seems like it’s all the rage, if you got off twitter and talked about it, most people (even creators) wouldn’t have a clue what it is. That said, I see light at the end of the tunnel. There are some creators, such as Justin Kan, who are using NFTs and pushing them further into the mainstream. The technology is aligned with the interests of creators and solves their problems. What matters now is that there are platforms and tools that exist that make it simple for creators to execute on these use cases and for fans and investors, to purchase, trade, and consume the content that comes with NFTs.
Currently, NFT marketplaces are relatively broad. OpenSea, Rarible, SuperRare, and Foundation (just to name a few) lean towards art and the unique asset use case. OpenSea is currently the only marketplace that has a wide array of use cases minted like music, VR/AR items, and collectibles. I see huge potential for this to be unbundled, seeing marketplaces and associated apps for specific verticals of NFTs to be built. The technology and culture will expand when there’s marketplaces to purchase custom game items linked to a Steam account or a music specific platform to buy exclusive tracks and collect songs like trading cards. There is a lot of low hanging fruit in the product space for entrepreneurs to build. And the success of NFTs depend on people building these platforms, marketplaces, and apps to open up use cases and provide easy and frictionless experiences to the masses.
Another hurdle is mass adoption of cryptocurrency. Price stability is a big issue for fans and purchasers. Over the last month ethereum has had a high of $1,950, a low of $1,350, and currently sits at $1,783. Price fluctuations make a big difference because new entrants are at a disadvantage over holders of ETH who bought at much lower prices.
The usability of current crypto products provides challenges for new entrants to the market. Picking a wallet, purchasing crypto, and transferring it was a big pain point that I was hearing from artists and purchasers in various Clubhouse rooms. Over all, there’s lots of room for progress in building user-friendly tools to enable people to mint and purchase NFTs.
Ultimately, NFTs are a way to create a world where creators benefit from their creations. They’re a way to build the creator middle class by enabling those people who build and participate in culture.
