After our first NFT collection, Adam Bomb Squad, debuted in the Summer of 2021, I was faced with myriad responses from spectators. There were those who were quick to congratulate us, others who were eager to hate. More than anything, I was met with a lot of questions.
“I don’t really get the whole crypto thing, but seems like you guys pulled off something cool?”
Of all the comments, however, none was more amusing than friends and customers asking, “They sold out too fast! Can you give me a heads up on the next release?”
With The Hundreds, we’d conditioned our community to anticipate scheduled drops. Every season, we offer a new collection of clothing in stores. Every other week, we market another fun collaboration or special project. Once 25,000 Adam Bomb Squad NFTs sold out in 40 minutes, the sophisticated NFTers knew to flock to auction sites like OpenSea to buy a bomb from a reseller. But our non-NFT crowd wanted to purchase the collectible directly from us, the source, whether due to authentication, for the emotional experience, or to be the original owner (“I’ll just wait for the next one!”)
I had to explain to our community that when it comes to NFTs, the point is to keep re-selling and buying into the same collection. Reason being that the Web3 collectibles system is engineered so that most projects continue to promote - and profit off - their existing NFTs instead of consistently dropping new ones. NFT creators (of the “PFP” variety à la sportscards) generate money in two ways. First, they “mint out” of a collection, meaning they make a certain number of NFTs, price them accordingly, and sell them out online. Pretty straightforward.
The second way that artists and founders make money off their NFTs is by getting a cut of every resale forever. NFTs are designed to be scarce and sell out immediately and that drives energy towards the secondary market. This part is reminiscent of trading models you often see with streetwear, Pokémon cards, and blue-chip art, except in those cases, the creator doesn’t typically benefit from secondary sales of their pieces. In Web3, however, one of the paradigm’s fundamental promises is that every time an artist’s NFT changes hands in the marketplace, they still get a cut of that resale thanks to smart contracts. The objective is to keep the demand up around an NFT collection as traders shuffle around the same collectibles and the original creator is rewarded a percentage of every flip.
Although this model has proven to be effective with some prominent NFT collections, it can be limiting, not only for the brands but for the overall space. Imagine there being only one neighborhood in the world. In the beginning, fifty houses for fifty families would suffice. Over time, the demand for that short supply of homes would rise with population growth. There would come a point when those fifty houses would be out of reach for 99.9% of people. This might mean some jaw-dropping sales figures for those homes, but it would not do much for the “mass adoption” of houses. Those fortunate fifty residents would carry on the game amongst themselves, but the other 99.9% would lose interest and seek another venue that could accommodate them.
The mistake that many have made in NFTs is misunderstanding the scarcity model. Oftentimes, founders and NFT creators aspire to be like luxury brands that limit the supply of a product to heighten its allure. They believe that to build a sought-after NFT brand, the number of NFTs should be restricted (and they justify this decision by the high prices some of those NFTs currently achieve at auction). Yet, there may be good reason in making more NFTs to build a bigger brand and a more expansive ecosystem. The New York skate brand Supreme didn’t just make one collection of clothing in the ‘90s and cash in their chips. While the specific pieces within seasonal drops are limited, the drops themselves are limitless. Supreme, as a brand, is perpetually printing shirts, stocking their online shop, hyping hot collaborations, and replenishing their customers’ closets. Supreme is infinite. They have become one of the most mainstream and notorious fashion brands in the world. And yet, they still maintain an exclusive aura and command an impressive resale value around individual clothing items.
With traditional collectibles, the goal is not only to keep the demand around the product up, but reinforce the brands dealing the limited goods, and above all, support the space itself. This is accomplished by converting more collectors, regularly issuing collectibles, and segmenting product for different markets. Pokémon didn’t stop with their first trading card game set in 1996. Today, they have nearly 100 editions in circulation with varying price points. And most artists don’t dedicate their entire career to promoting the same series of paintings to their buyers. They’d rather be prolific, constantly producing and adding texture to their legacy.
In 1985, Nike released the very first Air Jordan to the public for $65. They anticipated selling 100,000 pairs by year’s end but wound up selling 450,000 in the first month alone. The shoe was so surprisingly popular that Nike overshot production on the Jordan 1 and flooded the market. Prices plummeted. Sales racks were soon filled with Nike Air Jordans (in fact, the “1” was adopted as the first skate shoe in the ‘80s – not just for its agile design and ankle protection, but because the footwear was so affordable for skaters). Still, Nike followed up the Air Jordan 1 with the Air Jordan II the next November. Almost every year since, Nike’s released another new Jordan design, even long after its namesake Michael Jordan retired from basketball. The Air Jordan XXXVII recently unveiled and can be purchased on Nike’s website for $185, with some sizes of the popular colorways already sold out.
Nike wouldn’t have had the same meteoric rise in the ‘80s and ensuing decades if it weren’t for the Air Jordan. And sneaker collecting wouldn’t have become a $72 billion industry if it weren’t for Nike. Nike alone makes up $34 billion of that number and at 58-years-old, is regarded as one of the most valuable brands in the world. Imagine an alternate universe where Nike stopped shoe production after the first Jordan hit the clearance corner. Eventually, those Jordan 1s might have fetched a high resale value for a niche group of collectors trading amongst themselves. Over time, however, without the infrastructure of a global brand like Nike, an endless stream of fresh designs, a culture, and a broader audience, the mystique and enthusiasm around those sneakers would have crumbled like a decomposing midsole.
There’s another, more urgent reason why we need more NFTs to save NFTs.
As of this writing, we’re at a crossroads with NFTs whereby the default royalties model for secondary sales is being questioned, if not abolished. To stay competitive in a crypto slump, marketplaces like X2Y2, Magic Eden, and LooksRare have all recently chosen to abandon the required standard. Instead of marketplaces enforcing royalties for artists, they are leaving it to the collectors to decide if they’d prefer to pay the creators. While this about-face is antithetical to Web3’s ethos, many are surrendering to the sobering truth that this is the inevitable trajectory for NFTs. The royalties cut for creators and founders was always a charitable bonus versus a pinned stipulation.
If OpenSea, the biggest marketplace for NFTs, also pivots to zero-royalties, there could be dire ramifications for digital collectables. One worry is that project founders will desert their projects. Without any future revenue coming in from royalties, there is little incentive to continue pumping secondary sales of those NFTs. Not to mention once founders burn through all the original mint money, they won’t be able to sustain the business. If founders stop replenishing perks and utility for their holders, enthusiasm or hopefulness for those projects may wither.
In the late 1990s, professional musicians were faced with extinction once mp3s and Napster were invented, but they adjusted by making money off their art in other ways beyond CD and cassette sales. They leaned on touring, merch, and licensing deals. Today, the music industry is still very much alive and thriving, even though it looks different from generations past. Artists and founders in NFTs will also be pushed to adapt and rewrite the rules, just like they’ve done many times before. Perhaps project communities will find ways to aggregate their own funds to keep the energy up around the brand. Maybe NFT creators will restrict trading of their NFTs to their own personalized marketplaces, ensuring that they receive cuts of the secondary market.
An immediate solution for NFT creators trying to survive in the face of zero-royalties marketplaces is articulated in the paper above. While royalties may die, mints are here to stay. Historically, founders are expected to produce collections sparingly, far and few between. Maybe this is because of the CryptoPunks paradigm that most PFP-style NFTs are modeled after. LarvaLabs released the Punks in 2017 and never followed it up with a sequel (I’m not including Meebits). Instead of looking at mints as a one-and-done, however, what if a brand’s drops could be continuous and often, just like sneakers or cards or seasonal streetwear ranges or traditional art (or practically most consumer goods). This could even finally answer the unrelenting “Wen Utility?” question begged of NFT brands. Instead of pressuring founders to find limitless ways for their NFTs to dance, perhaps their purpose is in the central thesis: making NFTs. Keep in mind that the biggest collectibles companies (Topps, Great American Coin Company, Funko) serve to print collectibles. It’s counterintuitive, but their cards, coins, and toys become more special and in-demand the more they make.
All NFTs have intrinsic utility: to be collectable! What makes them valuable, however, has more to do with the theater, history, and reputation of the brand backing the collectable than any of its features or add-ons. For SoHo House patrons, the membership card is useful because it grants access to an elevator upstairs. The card is valuable because of the prestige encircling the SoHo House name. Oil brushed across canvas isn’t remarkable, but when it’s associated with the repertoire and life’s story of a Van Gogh, the painting becomes precious. And the more Marvel characters are added to the MCU, the more complex Iron Man becomes, and the more significant his franchise.
Consider a Preface to a book without a body or Epilogue. You need to write more chapters to not only tell a complete story, but to make the Preface make sense. The suggestion of adding more layers to an NFT brand isn’t just to weave a stronger brand narrative, though. It’s to also boost the value of the existing collections. Take Rolex, for example. Since they first introduced the popular Daytona in 1963, they’ve gone from collecting dust in shop windows to being one of the most sought-after retro watches in the world. Over the generations, as newer editions have hit the market with state-of-the-art mechanics and updated designs, the older, hand-wound Paul Newman 6239s with smaller 37mm cases have become romanticized. And scroll back to the bargain-bin Air Jordans. The culture needed Jordan Xs, XXs, and XXXs so that Jordan 1s, with their yellowing and cracked leather, could become idealized and sacred. The shoe’s scarcity and story are fundamental to its desirability, but its early position on the sneaker timeline has made it one of the most iconic collectables of all time. In 1985, the first Air Jordan was discounted for $25. Today, the average price for a pair is $25,000.
The critical ingredient across most every valuable collectable is nostalgia. Baseball cards were originally sturdy slabs of cardboard inserted into cigarette boxes to keep the cigarettes from breaking. It took decades for the sport to grow and baseball enthusiasts to develop fandom with their favorite players so that hoarding picture cards became a sentimental hobby. The retro Nike market obviously didn’t exist in the early 1980s. The Dunks and Air Maxes we have fond feelings for forty years later were cutting-edge designs at the time. Throughout our lives, the consistent reissues and remodels of those shoes have intersected with different emotional touchpoints, making the shoe much more than leather and laces bound to our feet.
With regard to NFTs, the hard pill to swallow here is that nostalgia takes time and work, while many are here for a hot trade and to conveniently get rich quick. NFTs are still so close to our noses, that they’re not even fully defined. You see the Twitter Spaces and thinkpieces - We’re still in the exploratory and educational phase of a new technology. Unfortunately, that also means we don’t have enough distance from NFTs to indulge in longing or memory. That also means that if we want this to become anything of meaningful and sustainable value, we have to let it grow authentically, support and participate in the culture, and most of all, believe in it.
In other words, we’ve gotta be invested.