Nonfungible Tokens, specifically in the digital arts space, have taken the art and crypto world by storm. They have become the “killer app” of Blockchain and driven up the utilities and adoption of digital currencies.
An NFT (non-fungible token) certifies a digital asset to be unique and therefore not interchangeable. NFTs can be used to represent items that reflect real-world assets, such as photos, art, videos, and audio that contain a permanent record of provenance, authenticity and ownership.
Tradeability and liquidity drive up the price of NFTs, but utility and meaningful stories elevate the staying power of NFT artwork pieces. Now big brands are using NFTs to communicate, connect with fans, and capitalize on their brand equity.
NFTs have forged a new avenue for the traditional auction houses such as Christie’s and Sotheby’s to tap into the digital art markets. That has been a big win for them. The NFT market has surged in Q2, 2021 with $2.5 billion in sales so far this year, an increase from just US$13.7 million in the first half of 2020. In terms of digital art NFT, the main sales volume is driven by Cryptopunks ($666M), and a few NFT marketplaces, NBA topshot collectibles and the Beeples auctioned piece for $69M.
NFTs sell not only the visual but a story, which is not too different from a brand, advertising commercial, song, or movie etc. In this case, the asset and narrative are condensed into a small or short format via NFT. In the case of Beeple’s famous auction, the collector Metakovan explained he relates well to the meaning behind the Beeple NFT art piece. Most of the successful NFT art drops or launches are from independent artists who have strong social media presence and also a strong background in the entertainment or advertising industries as a commercial artist. They are all good storytellers. These artists are the behind-the-scenes heroes for some amazing commercials, music videos, concert lighting, design and more. NFT empowers the digital artists to connect directly with their fans and be in the front instead of the backstage. As a result, we at Affiniti Ventures | AV(M) funded the virtual Mavenarte NFT Art live event and initiative, the first venture-backed NFT art show. It was created as a launchpad and a voice for top major digital artists in the entertainment space such as Carguin and Yuki Takahashi. While they tend to shy away from social media, the initiative successfully accelerated their entry into the NFT space and allowed them to auction off their NFTs on premium auction platform MakersPlace for their genesis NFT artworks.
Let’s take a step back and review the history of NFTs. NFT is a customized set of smart contracts created on the Ethereum Blockchain. It was started as a side project at a design studio called Axiom Zen based in Vancouver, Canada. As an experiment, they decided to create Cryptokitties, a blockchain version of Tamagotchi, the popular digital pet toy from Japan. Cryptokitties was the first generation of NFT collectibles in the crypto space in 2017. Each kitty is unique and non-fungible meaning it cannot be copied. But Cryptokitties went beyond and made use of Genetic Algorithm. The developer team of Cryptokitties programmed the breeding and mutation into a set of complex (programmable) smart contracts, so as to gamify the digital kitty collectibles instead of releasing a collection of static images. It gained enormous adoption and generated a total of 736414 transactions and 64616.3 ETH (which in current ETH price is equivalent to almost 200M). The peak was around Dec 2017 but plunged soon along with the crash of the rest of the crypto market. The underlying explosive growth lies in the utility of the product, in addition to the static records.
Many tried to follow suit and apply complex algorithms to create new applications and use cases via NFT and smart contracts, but mostly failed. Then NFTs went through a dark period until they emerged in late 2020 as a reliable way to certify and track ownership of digital art.
Now many big brands are entering the NFT space; they are well positioned to connect with existing fans and consumers and expand awareness to different and new audiences. Offering high quality NFT art or collectibles can elevate their brand value and positioning as a premium and innovative leader. There are some interesting examples, including the most recent Coca Cola NFT (titled “The Friendship box NFT” or the first ever Coca Cola Loot Box NFT). It’s sold for 217 ETH, with all proceeds going to Special Olympics International, Coca-Cola’s charity partner of 53 years.
Certainly, this is the first test for Coca Cola to explore in the NFT market. The content and the campaign was a great promotional event to engage with the fans.
However, instead of only 1 of 1 edition, Coca Cola and their partner TAFI could add more utilities to the NFT drop, for example:
- Create lower price collectibles (such as 1,000 or 10,000 units of numbered digital NFT with price points that are more accessible to a wide audience). Also a limited collection with special VIP access for fans such as events, early access to future NFT drops, raffle etc.
- Create utility social tokens for fans to acquire and hold on to; Coca Cola corp could partner up with the NFT community to establish channels to connect and engage with token collectors; the tokens should be treated as a reward point system of the social club, but there is good potential in value appreciation. Owning special rare NFTs and social tokens create a sense of ownership of the brand equity; indeed the token would be tradable in the market similar to a piece of NFT art, such that the stronger the brand positioning inside and outside of the NFTs, the higher the price the NFTs and tokens would get.
- Such a communal network with tangible financial value appreciation is a powerful way to create a self-driven and governing organization. The sense of ownership is a very powerful driving force to empower fans to become brand ambassadors and mobilize the bigger community. The social token is a utility token primarily, but could have the governance policy to guide and manage the community properly and could in turn make contributions and share ideas with the brand’s own product team and create and launch more engaging and successful products with less market risks or unknowns.
This isn’t a new concept. Many social tokens have already been created within the NFT community, but it would be a novel approach for big corporations and brands. The $Whale token and community created by a successful multi-millionaire NFT collector, WhaleShark, is an example of a well-run social community built around the social tokens. The social token and community should be a good proven case study for all major companies. WhaleShark gained his wealth by collecting NFTs early on in 2017. The $Whale team has amazing leaders such as WhaleShark Annissa and DeCryptolorian(DC). The $Whale token value has grown over 10x or 40x more during the peak, so something for brands to consider.
At Affiniti Ventures | AV(M) , we will continue to fund more projects that would apply the above approach to build social tokens and utilities in NFTs that brands can include as part of their marketing campaigns. Currently the team has an ongoing strategic partnership and discussions with big brands including Taco Bell, Johnny Walker and more. Other partners include a wealthy sneaker collector who owns a collection of rare physical sneakers worth over 1M. Together, we tackle some of the intriguing questions and problems in NFTs and in the convergence of digital and physical collectible space. As a precursor, we released an NFT based on the sneaker collector on MakersPlace.
AVM is always at the forefront of funding and empowering innovative ventures and initiatives including the Mavenarte NFT Art virtual live event in collaboration with some of the greatest NFT and digital artists and musicians including IntroToMusicTheory.com, LevZep, Richard Dixon (featured musicians and artists on a Defi NFT platform Charged Particles) and the two amazing artists Carguin and Yuki Takahashi who are from the AAA game studios.
Another venture invested by AVM is MomentSQ which has partnered with big brands on driving their digital content production and strategy. They have partnered with brands like Sanrio for the IP Aggretsuko, a popular Netflix Anime series in the western markets. It has achieved digital sticker usage and sharing for over 215 Million.
The impressive rise of the NFT market in Q1 2021 gives rise to the legitimate question whether it will stay or if brands will participate. The takeaway is that big brands are well positioned to capitalize on their brand equity by offering more utilities in their NFT offerings.
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