The global art market is roughly 7,000 years old. In 2020, it was valued at about $4.2 billion/month.
Compare that to the global art NFT market. Though it’s only 3 years old, individual platforms are already seeing more than $1 billion in NFT sales per month.
Safe to say, the NFT market is in a state of frenzy. Thousands of artists and developers around the world are rushing in to take advantage of a potentially once-in-a-generation opportunity.
Without the restrictive gatekeepers of the traditional art world, any enterprising creative can potentially launch the next Bored Ape Yacht Club. But as creatives rush in, it becomes harder and harder to stand out among the hordes of new projects launching every day.
Every NFT artist or team is asking themselves the same question: how can I differentiate myself and my work?
My answer: Create utility.
Five Types of Utility
“Utility'' in this context doesn’t mean “use”, in the way that a wrench has a “use”. Rather, Utility means “value”.
Simply put: projects that create Utility find adoption. Those that do not fade quickly from view. Consequently, the more intentional you can be about the value your NFT project will create, the better. Understanding the different types of Utility is also likely to inspire valuable ideas on how to best create a successful project.
There are 5 types of Utility an NFT project can provide: Aesthetic, Communal, Financial, Physical, and Functional. Note that these are interrelated categories and often blend together in interesting ways.
Think about the 5 types of Utility like a color wheel. In the same way that you use different colors when creating an artwork, you can draw upon different types of Utility to create a successful NFT project.
Some artworks are monochromatic, while others use a range of colors. Similarly, some NFT projects deliver only 1 kind of Utility, while others create all 5 types. Using more colors in an artwork is not necessarily “better”, and using more types of Utility is not necessarily better either.
But you cannot be a successful artist if you only understand how to use the color blue. Similarly, you are unlikely to find success as an NFT creator if you don’t fully understand the various types of Utility available.
The key is to view Utility as an essential creative decision for you as an artist to make. Let's dive deeper into each of the 5 types of Utility and identify potential strategies you can adopt.
In the traditional world of art, creating Aesthetic Utility is by far the most common approach. The same is true of the majority of NFT projects created today. They exist to be looked at and enjoyed.
Broadly speaking, Aesthetic Utility is created when your work is some combination of beautiful, novel, and memeable.
Beautiful. “Beautiful” does not always mean “attractive”, at least to a popular sensibility. The work of Hieronymus Bosch is often grotesque, yet still quite beautiful. Just as in the traditional art world, NFTs that explore complicated themes, challenge viewers, or provide a unique perspective are all "beautiful" in one way or another. To paraphrase Victor Frankl, beauty cannot be pursued, rather it must ensue. It comes when the artist approaches the work from an authentic and passionate state of being. As just one example, the mind-bending work of Chad Knight is superbly beautiful.
Novel. Beauty is accentuated by novelty. The scope for novelty is even higher in the NFT space than the traditional art world. While both digital art and generative art have existed for decades in the traditional art world, they have only recently attracted mainstream attention. Developing novel processes for generating work or exploring novel styles is a surefire way to create Aesthetic Utility. The prime examples of novel works are showcased on the ArtBlocks platform, where generative art is used to create novel aesthetic objects. Some are beautiful. But many others are not. But, as discussed on a recent Bankless podcast, all ArtBlocks projects are still in demand because they create Aesthetic Utility simply through novelty of process.
Memable. Since NFT culture is an offspring of internet culture, there’s an additional unique dimension to Aesthetic Utility: Memability. Ether Rocks is a project consisting of 100 unique images of rocks. They are not beautiful, nor are they novel. But they are memeable. At the time of this writing, the highest price paid for one was $1.3million USD. The first and best audience for NFTs are digital natives. Knowing the ins and outs of internet culture, along with what creates "memes" in the first place, is a superpower in the age of NFTs.
Ultimately, creating Aesthetic Utility is the core of any artist's job. Being true to your own vision, experience, and taste is the only way to be successful in this domain.
In the traditional world, collectors of famous artists typically know each other, meet at Art Fairs, and feel a shared sense of purpose. Similarly, in the NFT world, buyers want to feel connected to other supporters of a particular artist's work. This is where Communal Utility enters the picture.
Nearly every successful NFT project creates some kind of community around it. Typically, this is done by developing a following for a project on Discord and Twitter and actively encouraging conversation among community members.
Community as Club. If you're planning on creating an NFT, it pays to think clearly about how you'll actually create a community around your work. Many projects use a "Club Membership" model to generate Communal Utility. Purchasing a particular NFT grants the buyer an all-access pass. This may include access to exclusive events (like online concerts and Q&As), exclusive virtual spaces (like Sandbox rooms or VR Chat spaces, along with Discord channels), or exclusive perks with particular brands.
Community as Investment Group. The latest Communal Utility innovation comes in the form of fractional art buying. NFT artists create a work and use a platform like Fractional Art to tokenize the work. Individual buyers who might not be able to afford the entire piece can own a share of it, creating a sense of community with fellow shareholders. Cryptopathic, a crypto OG, fractionalized the ownership of a Shiba Inu meme photo. Within days, it became the most valuable NFT in history. Individuals could purchase the $NFD token to own a tiny share of the original image alongside him. Decentralized Autonomous Organizations (DAOs) like PleasrDao are another avenue towards building a community around particular works of art through co-investing. In both cases, communities spring up organically and rapidly around particular works of art.
Given the volume of new NFTs being created every day, Communal Utility is increasingly becoming the table-stakes for a successful project. If you're creating 1-of-1 works, this will require you to engage with collectors much more actively than you might have with your traditional artworks. If you're creating NFT collections, this will require you to create a compelling narrative around your work that gets buyers excited to join the club.
Art has never been separate from commerce. But in the world of NFTs, entirely new ways to combine the two fields have emerged. Smart contract platforms like Ethereum, Solana, and Polygon enable a dizzying array of ways to creatively generate Financial Utility for your collectors.
DAOs. One emerging strategy is to use the proceeds from your art sales to create a DAO. These DAOs can have myriad purposes, but fundamentally a DAO gives a buyer the ability to participate in some kind of activity. The design space here is wide open - one can easily imagine the DAOs of the future being used as creative elements themselves. Participants of the DAO may collaborate on new works, provide ideas, or help refine existing ideas. As the primary artist, you may play the role of a conductor, guiding your orchestra in directed but organic ways.
From a purely Financial Utility perspective, these DAOs may become investment vehicles, purchasing other NFTs like a crypto-ETF. They may become buying clubs, creating more Communal Utility. Or they may become the governance body for a particular collection, creating a secondary market for DAO tokens. Zhu Su has even suggested that DAOs may be the future of art galleries.
Liquidity Pools. For more finance-minded artists, there is also an opportunity to create liquidity pools based on your work. These pools allow buyers to "stake" their work (i.e. place the work in escrow) and receive financial benefits ranging from fee accrual to price appreciation.
Airdrops. Other projects promise additional "Airdrops" (i.e. free giveaways to existing holders) to create Financial Utility. For example, Crypto Cannabis Club has promised to give free Cannabis Plants to anyone holding one of the "Toker" NFTs from their collection. These create an incentive to buy the NFTs in the first place (who doesn't like free stuff?) as well as a disincentive for quickly “flipping” an artwork.
Cashflows. Finally, some projects are beginning to create revenue-sharing opportunities. The Parallel team is embedding Financial Utility directly into the NFTs themselves. A special class of their NFTs - "Masterpieces" - actually provide a cash flow. 1% of all revenues from secondary sales of the non-Masterpiece version of a particular NFT are given to the owner of the Masterpiece. In this way, owning a particular Masterpiece NFT is like buying a small franchise of Parallel.
Since many buyers first came into crypto for financial reasons, there’s a nearly unlimited desire to see further financial innovation in NFTs. As the space continues to mature, expect to see a rapid series of innovations in Financial Utility.
Digital forms of Utility are particularly valuable to digital natives. And since most NFT buyers are themselves digital natives, it stands to reason this is where the majority of the energy has been dedicated so far.
However, as the industry continues to go mainstream and attract non-crypto people into its orbit, a new avenue for Utility opens up: Physical Utility. This includes any form of Utility that exists outside of a computer or phone screen.
Merch. At a minimum, many projects offer merchandise (e.g. hoodies, hats, etc.) with their branding on it. Much like purchasing a band's t-shirt, these NFT-based pieces of merchandise allow buyers to further connect their meatspace identity with their digital identity. Wicked Craniums, as an example, just announced a partnership with SkullCandy headphones to create Physical Utility with their project.
Physical Art. For arts-focused projects, it's becoming increasingly common to offer physical representations of digital art. For example, the highly touted Generative Masks project will be sending physical wooden sculptures representing the masks to holders at a latter date. Fidenza, the stunning abstract generative art project, enables buyers to obtain a 1-of-1 printed version of the work to place on the wall at home. It's not hard to imagine projects in the future creating limited edition Funko-Pop-styled collectibles, based on digital avatars. In all cases, it's straightforward to verify ownership of the original work on the blockchain before sending any physical manifestations of the art.
Thematic Tie-Ins. Finally, for NFT collections, Physical Utility can be richly integrated directly into the theme of the project. Upcoming project Crypto Dads will be releasing a line of beer and whiskey based around their paternal branding. The Lion Club by Sports Icon will be providing tickets to real world sports events. Buying one of GaryVee’s VeeFriends, gets you an entry to his business conference.
Remember: behind every blockchain there are real-world human beings who use it. While the primary utility today may be online, the utility of the future will likely cross the digital and physical realms.
Traditional art provided Functional Utility by creating objects that could be displayed in buyer's homes and offices. NFTs are capable of delivering the same kind of Functional Utility, as well as much more.
Web2 Avatars. The most common form of Functional Utility in the current NFT landscape comes from Web2 Avatars. NFT collectors will use the artwork they've purchased as their profile picture (sometimes referred to as a PFP) on Twitter, Discord, and other social media platforms. Implicit cultural norms among NFT collectors prevent just anyone from "right-click saving" your NFT and using it as their own profile picture unless they've bought it themselves. Artists who consciously want to create this kind of Functional Utility must be careful to ensure that each of their works are differentiated and legible at a glance. In just a small circular image, the viewer must be able to identify unique attributes of the work in order for it to serve as a usable proxy for someone's identity online.
Web3 Avatars. Artists who believe in the inevitability of the Metaverse may also create Web3 avatars. These NFTs typically grant exclusive rights to an OBJ file that can be used as the buyer's avatar on Sandbox, VR Chat, etc. Meebits was the first project to create this kind of Functional Utility, but it certainly won't be the last.
Gameplay. Unlike traditional art, NFTs can create additional Functional Utility by being used as game pieces. Many of the most exciting NFT collections use their artwork to double as a playable character in some kind of online game. Rumble Kongs have given their NFTs special properties relating to a Basketball-like game. Galaxy Fight Club has created NFTs that can be used in a Player vs. Player battle game. These games create additional Financial Utility by providing cryptocurrency rewards for winners of their online games as well.
There are literally thousands of potential games to create using NFTs, and many thousands of non-gameplay uses for Functional NFTs yet to be discovered.
The Future is Unwritten
Every successful NFT project is unique, but every unsuccessful NFT is alike: they all failed to create any Utility.
NFTs are one of the rare artistic arenas where the medium itself can be creatively configured by visionary artists. It’s as if with every painting, you could also invent a new type of canvas to support the work. Treat the Utility design process as its own creative act, invent new ways of delivering value, and always have a clear answer to that essential question: why would anyone buy my NFT?
If you’re developing an NFT and have questions, shoot me a DM on Twitter @kashdhanda.