With more than $41 billion worth of cryptocurrency traded in 2021 (Chainalysis Inc. 2022), NFTs are creating an unbelievable assemblage of Money Legos. From PFP to animated JPEGs, these NFTs can be used in impactful and unusual ways. On the one hand, creators and collectors are flooding the NFT space with digital collectibles that cost thousands of dollars. On the other, investors, artists, and collectors congregate behind a unifying idea – “let’s squeeze real value from static digital collectibles.” The classic metaphor to understand this sudden change in demand is UTILITY. We may think of NFT as somewhat intangible, digitized pixels. But projects like VeeFriends and MetaKey have demonstrated that real-world use cases and utilities can emerge in the industry. In the future, we might attend conferences, unlock access to private meetings, and hail taxis using NFTs; utility NFTs.
NFTs have reached mainstream adoption, making it easier for anyone to create simple artworks, mint them on the blockchain, and sell them for thousands of dollars. Instead of valuing how rare digital arts look, can we have those that deliver a new form of value? Those whose utility defines their value? Creating a Jpeg that commands thousands of dollars is undoubtedly impressive, let alone one that allows access to exclusive events. But true disruption requires real-life impacts and expanding the current state of digital collectibles. To demonstrate a true pixelated-powered economy, you must create an environment where investors and collectors benefit from the value of digital collectibles and utilize them to access additional services across various market conditions and cycles. This is utility NFT’s task over the next few years and beyond. It must be an investment vehicle for holders by granting them privileges like staking, farming, and governance rights.
Utility NFTs as the inaugural vehicle of more adoption
The last few months have seen an explosion in digital collectibles. The NFT craze started in 2020 when more than 80,000 NFTs were traded every week. However, the real growth began in 2021 as the industry recorded more than $2 billion in NFT transaction in the first quarter of 2021 (representing about 2100% from the previous year). NFTs generated more than $2.4 billion in the first two quarters of 2021, and about $49 million was traded on 1st August on OpenSea. While we may equate this growth with the overall growth of the crypto industry, the growth of collectible NFTs has also influenced and enhanced the development of utility NFTs.
What’s responsible for this paradigm shift? Why have founders taken to the space to aggressively support the new movement? Utility NFTs are increasingly popular, and investors and creators have awoken to their potential and long-term value. One may argue that some collectible NFTs fill a similar space, but the process and models are often fundamentally different and usually tied to the appearance of an artwork. Creating artworks with intrinsic value and real-life benefits enables more use cases and broader explorations. One of the ways to attach additional values to NFT is to make them redeemable assets that can be swapped for digital or physical goods. Consequently, terms like phygital are gaining popularity because of the increasing demand to merge physical goods with digital assets. The modern art industry is also at the forefront of the early movers to adopt phygital. In an industry that’s face-paced, where invention and innovation are cross-pollinating with inspiration, it is not uncommon to see Smart MFG launching Phigital, a 3D marketplace for NFTs allowing creatives to embrace a transparent approach against intellectual misappropriation.
Another way to capitalize on the potential of DeFi is to attach yield-producing utility features to NFTs. Some Non-Fungible Tokens operate as vehicles of value. Indeed, they make up the minority: research from Nonfungible.com showed that about 86% of the current NFT projects are mere digital collectibles. Their existence is justified by media hype and influencer marketing. This makes perfect sense from a creator’s perspective, but it is against blockchain’s promise of more inclusion and technology that powers digital assets as a store of value. For NFTs to evolve without losing some of their core values, we should start judging them beyond their measure to guarantee an immediate return on investment. Hence, utility NFTs operate in two directions: long-term impressive financial returns and deliver strategic value for its holders.
3D NFTs: A large vertical of utility NFTs
As a flywheel that’s already accelerating, utility NFTs are the latest breakout vertical in the NFT space. Though an absorbing model of the reality in and of itself, especially with its integration with gaming assets, prioritizing privacy and security without sacrificing the efficiency of tokenizing manufacturing assets and building interoperability in the metaverse. By creating a three-dimensional-based world, several blockchain games are turning to 3D NFT models to build their in-game items. This is because feelings, movements, and experiences are better represented with avatars and characters in 3D format. In addition, creators can create a more realistic world and simulate the dynamics of reality through NFTs.
Utility NFTs have, to an extent, matured from just on-chain artwork created in 3D to being a carrier of value, both within the blockchain gaming ecosystem and outside the gaming platforms. That expected growth has given us reasons to be optimistic. Creators, art collectors, and investors will continue innovating and organizing the 3D community around a common ritual or goal. Unlike the movement that ushered in the collectible NFTs, the utility enables this type of Non-Fungible Token with unifying demand extractable from the limitless potentials of blockchain. Not only would it change as the industry changes, moving from 2D to 3D, pixels to utility-based pixels, but it would also onboard new creators and institutional partners.
What to Expect in the Future?
Over the past few months- accelerating since the NFT bubble- a cast of upstarts have entered the digital asset industry, angling and attracting creators into the creator economy. Each provides slightly different means for creatives to monetize their work, varying methods, and different business models. One of these fractal spreads is utility-focused NFTs as they now provide additional benefits rather than just an investment asset. Interestingly, they have set a positive precedent for how NFT will continue to be developed and used across different verticals for different purposes in the future.
At Smart MFG, we are building Phigital, the first 3D NFT marketplace for the Open Metaverse by focusing on cross-metaverse 3D assets interoperability. We believe utility NFTs will enable an on-platform digital-to-physical bridge and are committed to partnering with gaming companies and creators to become the de-facto platform for 3D assets in line with the market demand.
