Guest Post | TPan on NFT Utility

This post originally appeared on 'Web3 With TPan.'  Subscribe to read all his work. 

Similar to my piece on Memes, I’ve been thinking about this NFT Utility for some time. It’s a heavy topic, a hot topic, and a complex one.

Why?

Traditional concepts of utility are clear-cut. If I use Netflix, I have a good idea of what I’m paying for.

Netflix will continue to expand its offering (eg: mobile games), but I know what I’m getting today if I pay $9.99 to subscribe.

Basically this:

In the broader space of Defi and Crypto, it’s more convoluted, but still clear-cut. If you’re buying a token.

This is a broad generalization, but it’s basically a version of the above. Tokens can go to 0 or 100x, and people understand most of these are an investment of some sort. You don’t hear as many complaints about ‘utility’ here because of the above.

And yes, there are plenty of tokens that serve a governance or membership purpose 🙂

Chris Dixon described it well with this chart from 2017

But with NFTs…

The prices of these NFTs generally reflect the expectation or realization of those promises, or ‘Utility’.

So how should we think about utility? What kinds of utility how there? How do we categorize utility?

Level 1: Utility Type

Part of the reason I’ve been pondering about this topic for so long is that I’m not sure what the best visualization around utility is.

I don’t think it’s a pyramid-like Maslow’s Hierarchy of Needs. That assumes everyone has the same needs and while NFTs aren’t essential like…food.

That said, Maslow’s framework helps us to pinpoint why people want NFTs, and I think it comes down to three categorical reasons:

Emotional, Financial, and Functional

These are not mutually exclusive either.

For example, if you hold or purchase a Bored Ape, the utility of owning one could hit several levels of the hierarchy.

Emotional: Sense of community and connection

Financial: Value of the NFT, airdrops, and owning the token itself

Functional: Events (eg: ApeFest at NFT NYC)

You can even make the argument that BAYC can lead to self-actualization because of the additional opportunities it provides 🧘

Level 2 - Utility Dimension

This one’s simpler

Digital and Physical

Some examples:

Access

Digital: Access to raffles to mint other exclusive projects

Physical: Access to physical locations

Goods

Digital: Assets that are used in various ecosystems.

Physical: Good ‘ol physical merch. PLEASE, no more black hoodies 😂

Level 3 - Utility Sub-Dimension

There’s another layer here within the physical/digital side of things

Intra and Inter

“Intra” is within a group while “Inter” is between groups

So when we add Level 3 onto Level 2:

Intra-Digital: Otherdeed holders playtesting Otherside

Inter-Digital: Otherside when it is available to the public. You can see I chose my Cool Cat as my avatar, suggesting the Otherside will be open to more than just the Bored Ape ecosystem.

Ready Player Me is a clearer example of digital interoperability.

Intra-Physical: Ape Fest at NFT NYC was a physical event for Bored Ape and Mutant Ape holders only.

Inter-Physical: Food Fighters Universe (FFU) has multiple locations for free meal redemption for holders.

FFU has also done several collaborations with other NFT communities, which is interesting when applying this utility framework. I would consider this inter-physical utility, though there are digital elements to it.

Level 4: Utility Frequency

How often is the utility exhibited?

Evergreen: This is associated more with the emotional aspects of owning an NFT. For example, I like my Cool Cat even though the value of it has dropped ~80% from its peak. If it goes to 0 that may change 😂

Occasional: In the above FFU example, holders can redeem a free meal once per month at partner locations.

One-time: Airdrops like ApeCoin for Bored Ape holders earlier this year.

What Does This Look Like Put Together?

So I said I that visualization of utility shouldn’t be a pyramid, right?

Well, I think I found a better visualization, a reverse pyramid 😂

Not sure if this is the final form, but I think the logic reflects the Level framework well.

If you think through creating utility, this is probably the order of operations you would think through.

Level 1: What type of utility are you providing? This is important especially as you think through Utility-Market fit.

Level 2: How will the utility be manifested?

Level 3: How will the utility manifest itself with the internal ecosystem and broader ecosystem?

Level 4: How often will the utility occur?

Some examples:

Ape Fest for BAYC holders:

• L1: Emotional + Functional

• L2: Physical

• L3: Intra

• L4: Occasional (once a year)

Doodles Allowlist Raffle for another NFT collection:

• L1: Financial (for the most part, unless you really like that collection)

• L2: Digital

• L3: Inter

• L4: Occasional

As a product and community mature, it’s important to think through how all the bases will be covered:

• Knowing your community, what utility parameters should be covered first? What does the community care the most about?

  Is there a unique utility that covers multiple parameters at once?

• How should efforts toward building utility be prioritized? Are there any that would be home runs? Any that would be high risk, high reward?

What about art?

This is an important question. There have been numerous instances where speculators expected artists to deliver more than…art.

Earlier this year, Drift had an open edition mint (there was no cap on the supply until the minting period ended).

Many speculators minters were disappointed to learn that what they minted was exactly as advertised: It’s art. There would be no airdrops, no perks, no merch.

Todd Levin, a fine art expert, had a similar and nuanced take on the “Art Is the Utility” on a Rug Radio Twitter Spaces:

“Art is art, utility is utility. Utility is optional. Art is not.”

I agree with both of these sentiments. You can fit NFT art into the framework I created, but it shouldn’t be compared to other projects and brands in the same way.

Limitations of Utility

Any utility has pros and cons which is why 1) covering your bases from a utility POV and 2) Utility-Market Fit is important.

A personal example: I minted a project based on Tiger Beer in January. Tiger is a popular Asian beer brand, so I thought this would be a hit. Plus, holders got a monthly supply of free beer!

However, a minor detail that I missed…the beer perk was in Asia while I’m here in California.

Utility-Market fit ❌

Similarly, with FFU, the primary utility (for now) is around the physical utilities of IRL events and food. If you don’t live in an area that could benefit, the perceived value of the utility is reduced.

Typically, teams want to mint out their project. However, if an NFT project’s utility is physically constrained, disregarding the minter’s location is risky long-term.

The result of a geographically distributed mint results in a community that doesn’t benefit from the utility. Over time, those community members would churn (like me with Tiger Archives). This results in a different headache of lower perceived value via a lower floor price.

On the other hand, if the project is explicit about the limitations of the benefits, it may foster a stronger community that maximizes the IRL benefits.

I’m sure FFU has added many more locations over the past few months and food isn’t the only perk, but the limitations still remain.

There’s much more to explore around the topic of utility, and the broader ecosystem’s understanding of utility will evolve as we see more innovative applications of web3 and NFTs.

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