NFT Utility Standard

Before heading towards the future, it’s essential to understand the past.

The bull market for cryptocurrencies was kickstarted by the explosion of Non-Fungible Tokens (NFTs) in 2021. The popularity surge of NFTs not only ignited people’s curiosity about web3 but also accelerated the adoption of DeFi and exploration of novel concepts like Decentralized Science and Decentralized Autonomous Organizations (DAOs). In 2021, NFTs were primarily used for digital profile pictures, a seemingly abstract concept that nevertheless brought hundreds of billions of dollars into web3.

The short explanation for this phenomenon is social signaling and a sense of community. As our lives increasingly migrate to digital realms, social signaling becomes easier and its efficiency is exponentially amplified. Coupled with the increasing loneliness in our world, there is a palpable longing for belonging. The long answer centers around the fact that humans are fundamentally more emotional and social than rational, and it is precisely this characteristic that makes us unique. NFTs capture our inherent need for emotional engagement. We sometimes fall into the trap of viewing situations solely through a rational lens, neglecting the less tangible but perhaps the most vital aspect of our nature. A rational assessment of individuals purchasing thousand-dollar bags and clothes from luxury brands like Gucci and Louis Vuitton seems nonsensical. However, when we view these actions through a social lens, things begin to make sense.

The bull run was indeed a spectacle to behold. In 2021 alone, NFT sales amassed an astonishing $23 billion. CryptoPunk #5822 was sold for a record $23.7 million in early 2022. Yet, following the economic meltdown and the collapse of Luna and FTX in late 2022, the market began a steep descent. Although NFT activity in the community remained relatively consistent, mainstream excitement fizzled out, partly due to the multitude of ‘rug pulls’ during the bull market that resulted in significant monetary and trust losses. For NFTs to rekindle mainstream interest and propel web3 to new heights, we need a systemic change.

In a somewhat controversial stance, I argue that the mainstream adoption of web3 will not arise from DeFi, despite the community’s remarkable progress in recent years. Instead, it will emerge from more social paradigms like NFTs and DAOs. A mass adoption of NFTs could elevate DeFi to a new level and bring substantial on-chain liquidity. Although the next bull run might very well be sparked by an existing but currently overlooked paradigm, if the world adhere to repeatable patterns, what might be the next evolution of NFTs to start the final and self-sustaining bull run?

Utilities

Exciting developments are in motion with NFT standards, from ERC-5773, which introduces the concept of NFTs owning multiple assets that can be conditional based on oracle data, to ERC-6551 and ERC-6059, token bound accounts allowing an NFT to own other NFTs.

The concept of dynamic NFTs aligns well with gaming, where in-game assets are components contributing to a larger whole, just like Legos. It also fits neatly within the Metaverse vision, wherein you could build an asset with NFT components and sell it to a secondary buyer for a much higher price. The concept of Token Bound Accounts also meshes perfectly with the Reputable Governance I discussed in a previous article, where a membership badge can accrue reputation-based credentials based on DAO members’ contributions. Reputation would also enrich DeFi, Decentralized Social (tho I’m skeptical on this for many reasons), and Decentralized Talent Network where reputations establish trust and allow for uncollateralized lending, time tokens, and more. It would be very interesting to see if dynamic NFTs could also extend to fungible tokens, unlocking more creative possibilities.

Despite this exciting progress, we’re still missing the bigger picture. We’re still building products primarily for the crypto-natives. Although some argue that these will attract the mainstream, one can also argue that we’re actually avoiding the important question by digging a deeper hole, delusioning ourselves and wishing something that’s too good to be true. Extending crypto to the masses requires a more direct approach. Maybe the catalyst for mainstream adoption is hiding in plain sight: utility.

The everyday users only care about simplicity and utility; attributes that address their needs, desires, or simplify their daily tasks. I foresee a paradigm shift within the NFT space where people acquire NFTs not for a speculative play but more for the practical value they provide.

This very concept of utilities has been thoroughly discussed in the community, particularly in crypto Twitter mainly to lure people into more speculative NFT projects. The most prevalent NFT utilities include:

• Exclusive access to private Discord servers
• Passes for unique experiences
• NFT staking
• Governance and Voting Rights
• Future token airdrops

Here are some examples of real NFT utilities:

• Doodles allows for a voting process that determines the project’s direction and the allocation of funds (doodlebank) — each Doodle equating to a vote.
• UFC offers its NFT collectors exclusive access to both real-life and digital experiences, including Free Fight Passes and exclusive merchandise.
• LinksDAO allows members of the community to access a golf club, collectively owning golf courses, and participate in private events.

NFT Utility Standard

If you agree that the future of NFTs will be more utility-focused, we must then start building technologies that reflect this philosophy. The first step is utility discovery, followed by improving the quality of utilities. At present, NFT holders discover utilities through exclusive group chats or Twitter, a system that won’t scale as the technology reaches greater audiences.

My team and I are working on a standard that allows users to easily discover their NFT utilities on their wallets and enabling NFT admins to add, edit, and remove utilities from their collections. The utilities can be offered to all tokens or a specific set of tokens, based on rarities and prestige, within a collection. So different NFTs can have different set of utilities. Below is an illustration of this concept:

The V1 of this standard is just around the corner and you can track the progress here. The V2 of the standard is coming next month and will focus on quality improvement, breaking more barriers. We’re so excited to bring the NFT space to a new horizon.

Bonus Alpha

In a utility centric world, NFTs in the secondary market will be priced relative to the utilities they have. If a valued utility has been used by the pervious owner, the NFT sells for a lower price.

Also there will be a good amount of idle utilities that people are not using. What better way to provide value to NFT holders than allowing them to sell their NFT’s utilities in the secondary market. Of course, there are utilities that are meant to be soulbound, but the idea is the community or admins of the collection can custom set this parameter.

Coming soon to a theatre near you…