The Evolution of NFTs

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Non-fungible tokens (NFTs) have popularized digital assets, ushering in a new era of the internet, aptly named Web3. More closely resembling the openness of the original Web, developers are now pushing the boundaries of what is possible in our increasingly digital world.

We have witnessed a rise in the collection, trading, and sales of NFTs during the past two years. An entirely new industry has blossomed! Studios specialize in supporting the artists and creators to digitize their work. Marketplaces have opened their doors to mint, list, and sell the NFTs. A new generation of marketeers has come of age, bringing this new asset class to eager new audiences.

The large majority of currently popular NFTs consist of:

personal profile pictures (PFPs)
avatars
one-of-one artwork
generative art
collectibles
gamified digital assets.

However, these types of NFTs represent just an introduction to this new competitive landscape and are a small sample of what is possible with this technology! The evolution of NFTs will span across many industries and disrupt many traditional commercial activities.

To get us going on our personal exploration into the next groundbreaking NFTs, I would like to highlight some exciting new developments here. At the end of each category, I will provide graphical examples of new and exciting NFT projects and you can find the links to these in the Sources section below.

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Events, Communities, and DAOs

One of the fastest growing areas of development is how NFTs can form the foundation of community creation and engagement. Communities can use NFTs to demonstrate inclusion, signifying membership.

Using their token gating capabilities, NFTs can be used to access:

members only dApps
metaverse worlds
DAO sites
members only events.

And, they can be used to receive:

current benefits
future features
airdrops
accessory NFTs
subscription access
rewards.

All of this can be tied to the ownership of the primary or genesis NFT for the community or DAO.

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In a similar fashion, event ticketing for festivals, conferences, concerts, theme parks, resorts, shows, and meet-ups can be entirely digitized through the use of NFTs. Participants can simply enter the events by having their NFT in their mobile wallet. The advantages of linking digital entry to a physical event are plentiful and powerful, including:

tracking attendance.
opening access to additional event activities.
producing event maps.
access to special features.
providing event information.
conducting post-event marketing.
paying out rewards.
reaching out to fans.
creating collectible opportunities.

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Publishing and Distribution for the Film, Music, Photography, and Literary Industries

There is something so satisfying about curling up in my favorite chair with a book and disappearing into the far-off worlds within. Without the distractions from notifications popping up on my tablet and not fighting off the urge to check my favorite app, the reading experience elevates to a whole other level.

Unfortunately, this is no longer a cost effective method to distribute the written words and new literary works. We have also witnessed that long form content is no longer the most sought after form of publishing. Similar developments are transforming the film (videos and shorts), music (digital libraries and playlists, focusing on individual songs), and photography (online shareable experiences) industries.

NFTs will improve these existing, traditional models by not just providing content available in a digital format, but also creating the commercial channels and marketplaces to distribute the content efficiently. Above all, as the production costs are reduced and numerous organizations are cut out of the middle, the content creators will finally be able to receive their fair share of the proceeds from the sales of their creations.

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Document Digitization, Talent Acquisition, and Credentials

Step into any accounting, human resources, registrar’s, recorder’s, or medical office and you are overwhelmed by the large amount of paper files. Proof of who you are, what you owe, what you paid, what you did, and the state of your health is still stored mostly on paper. As archaic as this seems, it still works fairly well, if you stay and conduct your affairs in your local community. However, as soon as you step out and move away, crossing state, provincial, and country borders, all of this paper information becomes a limiting factor to efficient record keeping, information sharing, and identity verification. The medical industry has taken the greatest strides to digitize patient data and health records; unfortunately, these efforts are still localized.

NFTs will solve this problem by bringing all of this information together in a digital portfolio of identity, health, credential, reputation, and ownership information. A unique set of NFTs composed of images, documents, health, and financial data will be transportable anywhere in an instant. Above all, it will be accessible (with viewing keys or permits) in part or in its entirety by:

human resources professionals when making hiring decisions
registrars when enrolling students for educational courses
financial organizations for extending credit and opening accounts
dealers to access assets inventory and ownership
government employees to verify property ownership
medical personnel when administering health care.

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Where the Fungible Meet the Non-Fungible

A new category of NFTs is taking shape, marrying the foundational concepts from DeFi with the powerful features of non-fungible assets.

Applying this to the framework presented by a16z’s Michael Blau, the top layer of the NFT is what attracts us: the image, art, or media content. However, a non-fungible token consists of a rich stack of capabilities that I think can bring powerful features to DeFi. The underlying smart contract that hosts the NFT, metadata, and functionality can be utilized to unlock these attributes.

In this manner NFTs can be used to:

capture a protocol treasury by assigning a future value of tokens to be issued.
safeguard protocol value by vesting token emissions.
control initial token launches eliminating pump-and-dump schemes and locking out bot activity.
secure protocol liquidity for weeks, months, and years into the future.
set staking parameters with a pre-defined maturity date and a fixed set of rewards.
pay out a predictable, consistent stream of token rewards.
rent out digital assets, retaining ownership and collecting income.

The crossroads of fungible and non-fungible tokenomics designs are just starting to get explored. With further experimentation, the possibilities will surely expand far beyond the short list presented here, resulting in a bright future for this category of NFTs.

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The Evolution of Multi-Layer Tokens

Some of the benefits that NFTs bring to the digital world are already materializing with the current crop of NFTs. Others are key elements and strengths marking the rise of the new categories discussed here. In summary, the major benefits of NFTs include:

onboard new users into crypto.
build and grow cohesive communities.
construct, cultivate, and proliferate teams and teamwork.
enable artists and creators to share fairly in the monetization of their work and its distribution.
be produced and duplicated relatively inexpensively.
be distributed in an economical and efficient manner.
generate composable functionality.

Consisting of multiple layers, NFTs can open the doors to many use cases. They can be used to:

create a token gating mechanism.
provide utility.
incorporate collectible elements of uniqueness and rarity.
link to stored information off-chain.
execute embedded code in their smart contracts.
establish a self sovereign identity.
create verifiable credentials.
contain DeFi components of both present and future value.

The evolution of this new breed of NFTs leads us to sow the seeds we plant today and allows us to uniquely capture our future experiences, accomplishments, and social interactions. The speed at which NFTs are evolving is blisteringly fast. We have just witnessed the birth of a new asset class and it is time to buckle up as the talented developers, creators, and artists usher in the next wave, weaving non-fungible tokens into our daily lives.

Tot ziens – Opa.